Modern  Business 


A  SERIES  OF  SEVENTEEN  TEXTS,  ESPECIALLY  PREPARED 

FOR  THE  ALEXANDER   HAMILTON   INSTITUTE   COURSE  IN 

ACCOUNTS,  FINANCE  AND  MANAGEMENT 

EDITED  BY 

JOSEPH   FRENCH  JOHNSON 

DEAN,   NEW  YORK  UNIVERSITY  SCHOOL  OF  COMMERCE,  ACCOUNTS  AND  FINANCE 

Titles  Authors 

APPLIED  ECONOMICS EDWARD  SHERWOODB 

MEADE 

ORGANIZATION  AND  MANAGEMENT  LEE  GALLOWAY 

SELLING  .  (  H-  F-  DE  BoWEB 

IJ.  G.  JONES 

ADVERTISING       ....  /HARRY  TIPPER 

IG.  B.  HOTCHKISS 
CORRESPONDENCE G.  B.  HOTCHKISS 

CREDITS  /  LEE  GALLOWAY 

'  IP.  P.  WAHLSTAD 

TRAFFIC PHILIP  B.  KENNEDY 

ACCOUNTING  PRACTICE  .  .  (LEO  GREENDLINGER 

(.  J.  WILLIAM  SCHULZE 
AUDITING SEYMOUR  WALTON 

COST  FINDING DEXTER. S.  KIMBALL 

CORPORATION  FINANCE  ....     WILLIAM  H.  LOUGH 

/JOSEPH  FRENCH  JOHNSON 

< 

I  HOWARD    M.    JEFFERSON 
FOREIGN  EXCHANGE FRANKLIN  ESCHER 

INVESTMENT  AND  SPECULATION  .  /THOMAS  CONWAY 

I  ALBERT  W.  ATWOOD 

INSURANCE EDWARD  R.  HARDY 

REAL  ESTATE WALTER  LINDNER 

COMMERCIAL  LAW CHARLES  W.  GERSTEN- 

BERG 


Organization 


and 


Management 


PART  I:    BUSINESS   ORGANIZATION 
PART  II:    BUSINESS   MANAGEMENT 

BY 
LEE  GALLOWAY 

ASSISTANT  PROFESSOR  OF  COMMERCE  AND  INDUSTRY  IN  THE  NEW  YORK  UNIVERSITY 
SCHOOL    OF    COMMERCE,    ACCOUNTS    AND    FINANCE:    AUTHOR   OF  "ECONOMICS  OF 

DOCK  MANAGEMENT" 


Modern  Business 
Volume  II 


ALEXANDER  HAMILTON  INSTITUTE 
NEW  YORK 


COPTBIQHT,  1909,  BY 

ALEXANDER  HAMILTON  INSTITUTE 

COPYRIGHT,  1910,  BY 
ALEXANDER  HAMILTON  INSTITUTE 

COPYRIGHT,  1911.  BY 
ALEXANDER  HAMILTON  INSTITUTE 

COPYRIGHT,  1912,  BY 
ALEXANDER  HAMILTON  INSTITUTE 

COPYRIGHT,  1913,  BY 
ALEXANDER  HAMILTON   INSTITUTE 


TABLE  OF  CONTENTS 


PART  I:     BUSINESS  ORGANIZATION 

CHAPTER  I 
DEVELOPMENT  OF  ORGANIZATION 

FACE 

4.  Organization,  a  Logical  Arrangement  of  Parts     ...  1 

2.  Early  Economic  Man 2 

3.  Influence  of  New  Economic  Activities 4 

4.  The  Town  Becomes  a  New  Economic  Unit     ....  6 

5.  "  Town  Economy  "  Shows  the  Benefits  of  Association     .  8 

6.  Comparative  Importance  of  Labor  and  Capital  in  the 

Handicrafts  System 10 

7.  Second  Transitional  Period  —  Domestic  System        .      .      11 

8.  Extension    of    National    Government, —  Appearance    of 

Middle  Men 13 

9.  Organization    of    Capital    Investments    by    the    Use    of 

"  Joint  Stocks."    .  ,      .  16 


CHAPTER  II 
DEVELOPMENT  OF  ORGANIZATION  (Con.) 

10.     Factory  System 23 

*  11.     Cooperation  and  Centralization 24 

12.  Effect  Upon  the -Laborer's  Status 25 

13.  Producer  as  a  Business  Man 27 

14.  Trusts,  or  Unions  of  Corporations 30 

15.  Division  of  Labor 32 

16.  Territorial  Division  of  Labor 35 

17-     Advantages  and  Limitations     .  36 

V 


vi  CONTENTS 

CHAPTER  III 
ORGANIZATION  OF  THE  MARKET 

SECTION  PAOK 

'18.     Extension  of  the  Market 38 

J  19.     Primary  Function  of  a  Market 39 

V20.     Market  Prices  a  Resultant  of  World-Wide  Influences     .  41 

21.  Function  of  the  Middleman 41 

22.  Market  for  Raw  Materials 42 

23.  Market  for  Manufactures 44 

24.  A  Grain  Market 45 

25.  Receiving  and  Storing  the  Supply 46 

26.  Inspection  and  Grading 48 

27.  State  Bureaus  of  Inspection 48 

28.  Chicago  and  Liverpool  Grades  of  Wheat      ....  50 

CHAPTER  IV 
THE  EXCHANGE 

29-     A  Typical  Market 52 

30.  Chicago  Board  of  Trade 52 

31.  Two  Classes  of  Buyers 55 

32.  Speculation  and  Gambling 56 

33.  Defense  of  Speculation 58 

34.  Course  of  an  Order 59 

35.  Two  Kinds  of  Traders 59 

36.  Method  of  Payment 60 

37.  Margins 6l 

38.  Clearing-House         62 

39-     Rules.,  Regulations  and  Management  of  the  Exchange     .  63 

40.     Complexity  of  the  Market  Forces 66 

CHAPTER  V 
MARKETING  OF  MANUFACTURED  GOODS 

"41.     Attempts  to  Develop  a  Special  Market     .       .   "  .       .       .68 

42.  Manufacturer  and  Middleman 68 

43.  Agency  Methods  of  Selling 70 

44.  Selling  Directly  to  Customers 74 

45.  Selling    Through    Commission    Houses  —  Broker    and 

Converter 78 


CONTENTS  vii 

SECTION  PAGE 

46.  Mail-Order  Method 80 

47.  Manufacturer's  Retail  Stores 82 

48.  Reasons  for  the  Declining  Importance  of  the  Middleman  84 


CHAPTER  VI 
ORGANIZATION  OF  EXPORT  BUSINESS 

49.  Necessity  for  Seeking  Foreign  Markets 88 

50.  Modern  Methods  of  Reaching  Foreign  Markets  ...  89 

51.  Direct  Relations  With  Foreign  Buyers 91 

52.  The  Importance  of  Clearness  in  Foreign  Correspondence  93 

53.  Quoting  of  Prices 96 

54.  Export  Commission  Houses 100 

55.  Cautions  to  be  Observed  in  Dealing  With  Commission 

Houses 103 

56.  Evil   of   Substitution 104 

57.  Bonus 105 

5"8.     Foreign  Sales  Arrangements 105 

59.  "  Jobbing "  Houses 106 

60.  Foreign  Commission  Agents 107 

61.  American  Salesmen  Abroad 107 

62.  Branch  Houses   .  108 


CHAPTER  VII 
CONSULAR  SERVICE 

63.  Purpose  of  the  Consul Ill 

64.  Brief  History  of  the  American  Consular  Service      .      .111 

65.  Present  System  Governing  Consular  Appointments   .       .112 

66.  Grades  and  Salaries  in  the  Consular  Service      .      .       .114 

67.  Consular  Reports 115 

68.  Foreign    Needs    and    Prejudices 118 

69-  Foreign  Credits 120 

70.  Methods  of  Packing 120 

71.  Foreign  Trade  Opportunities 122 

72.  Protection  of  Customs  Revenues 123 


viii  CONTENTS 

CHAPTER  VIII 
ORGANIZATION  IN  MANUFACTURING  INDUSTRIES 

SECTION  PAGE 

73.  Specialization  and  Cooperation 124 

/74.  Fundamental  Principles  of  Factory  Organization     .       .125 

N^75.  Predetermining  a  Business  Enterprise 126 

76.  Source  of  Raw  Materials 127 

77.  Source  of  Power 127 

78.  Labor  Market 128 

79.  Market  for  the  Factory's  Output 128 

80.  Transportation  and  Its  Relation  to  Factory  Location      .  129 

81.  Physical   Surroundings 130 

82.  Reorganization  of  Existing  Plants 131 

83.  Comparative  Advantages  of  the  City  and  Country     .       .132 

84.  Design  of  a  Modern  Plant 134 

85.  Transmission  of  Power.     Tool  Room.     Store  Rooms       .  136 

86.  Standard  Equipment 137 

87.  Transportation  Within  the  Plant 138 

88.  Conveyance  of  Internal  Information .141 

89-  Summary 142 


CHAPTER  IX 
DEPARTMENT  FUNCTIONS  AND  ORGANIZATION 

90.  Basis  of  Departmental  Divisions 144 

91.  Prime  Functions  of  a  Manufacturing  Business     .      .      .144 
•^92.     Duties  of  the  Officers 152 

93.  Military  Method  of  Organization 155 

94.  Organization  of  the  Planning  Department     .       .       .       .156 

95.  Foremen  of  the  Planning  Department  and  Their  Duties  157 

96.  Shop  Bosses  and  Their  Duties       .      .      .      .      .      .      .158 

CHAPTER  X 
INTERDEPARTMENTAL  RELATIONS 

97.  Course  of  an  Order  for  Goods 161 

98.  Drafting  Department 164 

99.  Tool  Room 166 

100.  Local  Management  Versus  Direction  from  a  Distance     .  167 


CONTENTS 


SECTION 


101.  Character  of  the  Controlling  Authority  and  Its  Relation 

to  the  Business 169 

102.  Committee  System 170 

103.  Committees 171 

104.  Meetings  of  the  Job  Bosses  and  Foremen   .      .      .      .172 

105.  Work  of  the  Committees     .      .  ,174 


CHAPTER  XI 
OFFICE  SYSTEMS  AND  REPORTS 

106.  Basis  of  Office  Organization 175 

107.  Planning  the  Administrative  Offices 175 

108.  Office  Appliances 178 

109.  Standard  Forms 179 

110.  Reports 180 

111.  Factors  Deciding  Who  Should  Make  the  Reports       .      .181 

112.  Contents  of  the  Reports 181 

XtlS.  Executive  Report 184 

114.  Report  from  the  Selling  Department 186 

115.  Factory  Reports 188 

116.  "Progress  Report" 190 

117.  Cost  Reports 192 

118.  Period  Covered  by  a  Report 192 

119-  What  Should  be  Done  With  Reports 192 


PART    II:     BUSINESS    MANAGEMENT. 

CHAPTER    I. 
PRINCIPLES  OF  MANAGEMENT. 

1.  Cardinal  Elements  of  Management 195 

2.  Every  Principle   Implies   a   Force 195 

3.  Nature  of  Business  Forces 196 

4.  The  Manager  Must  Direct  Forces 197 

5.  Human   Engineering 200 

6.  The  Basic  Principle  in  Management 201 

7.  The   Purpose   of   Management   is   Profits      ....  202 


*  CONTENTS 

SECTION  PAGS 

8.  Immediate    versus    Future    Profits 203 

9.  Difference   between    Manager    and    Engineer      .      .      .  204 

10.  Specialization    Complicates    Management      ....  205 

11.  Specialization    in    Management 205 

12.  Department   Specialization 206 

13.  Cooperation   and  Specialization   Must  Go   Together      .  207 

14.  Is   There   a  Science  of  Management? 208 

15.  Scientific  Methods  of  Investigation 209 

16.  Continual   Study  and   Progress 211 

17.  What  the  Science  of  Management  Involves    .      .      .      .213 

18.  Effect  of  a  New  Standard 215 

19.  Furnishing  the   Men   with   a   Teacher 216 


CHAPTER    II. 
MANAGEMENT  UNITS. 

20.  Few  Principles  but  Many  Methods 219 

21.  Economic    Units 220 

22.  Industrial    Units 221 

v  23.     Distinctions    Between   Economics,    Industry    and   Busi- 
ness       221 

24.  Management  or  Business  Units 223 

25.  The  Manager's  Cabinet 226 

26.  Analysis  of  Staff  and  Line  Organization      ....  227 

27.  Financial    Department   as    a    Unit 229 

28.  Sales    Department    as    a    Unit 230 

29.  Accounting  Department  as  a  Unit 230 

30.  Production  Department  as  a  Unit 231 

31.  Management  Units  the  Basis  of  Organization  Charts      .  232 

32.  Duties  of  the  Management   Units 233 


CHAPTER    III. 
TYPES  OF  MANAGEMENT. 

33.  Basis    for    Selecting    Types      ........    235 

34.  Unsystematized  Type  of  Management 236 

35.  Majority    of    Industries    Unsystematized      ....    237 


CONTENTS  xi 

SECTION  PAGE 

36.  Systematized  Type  of  Management 238 

37.  Cost    Records    Highly    Developed 238 

38.  The  Efficiency  Type  of  Management 239 

39.  Standardizing   Costs 240 

40.  Costs  Come  as  a  By-product 240 

41.  Comparisons  Which  Afford  a  Deadly  Parallel      .      .      .241 

42.  Stock-taking  under  Scientific  Methods 242 

43.  Staff  and  Military  Types  of  Management      ....    243 

44.  Army  as  an  Analogy 244 

45.  Functions  of  the  General  Staff 245 

46.  Organization  of  Military  Staff 245 

47.  Organization   of   Administrative   Staff 246 

48.  Succession  by  Seniority 247 

49.  War  Develops  Organization 247 

50.  Staff  and  Line  in  Business 248 

51.  Divisional    and    Departmental    Types 248 

52.  Characteristics  of  the  Departmental  Type     ....    249 

53.  Comparisons    of   the    Two    Organizations      .       .       .      .251 

54.  Advantages   and  Disadvantages   of  the  Two   Types      .    254 

55.  Compromises  in  Practice 256 

CHAPTER    IV. 
TYPES  OF  MANAGEMENT  (continued}. 

56.  Undisciplined    and   Disciplined    Management      .      .      .    257 

57.  Undisciplined  Type 257 

58.  Low   Labor   Efficiency 259 

59.  Disciplined  Type  of  Management 260 

60.  Evidences  of  Discipline 260 

61.  Traditional,    Transitory    and    Functional    Types      .       .    262 

62.  Functional    Type    of    Management 264 

63.  Work  Planned  Ahead 264 

64.  Planning  Gives   Control 264 

65.  Labor  Efficiency  under  Functional  Management      .       .265 

66.  How  Scientific   Selection  Aids  Discipline      ....    266 

67.  How  Training  Helps  Discipline 267 

68.  Proper   Tools   Must  Be  Furnished 268 

69.  Best  Discipline  Gained  by  Proper  Incentive      .      .       .    268 

70.  Taylor's  Description  of  Functional  Management      .       .    268 


xii  CONTENTS 

SECTION  PAGE 

71.  Summary  of  Essentials  in  all  Types 272 

72.  Two  Corollaries  of  Management 274 

73.  Shape   the   Man   to   the   Organization 275 

CHAPTER    V. 
MODERN  AIDS  IN  MANAGEMENT. 

74.  Real    Management    is    Concerned    with    Policies,    not 

Details 277 

75.  Organization  Charts 278 

76.  Charts  Clarify  Ideas 278 

77.  Organization  Records           281 

78.  Written   Records   a   Basis    for   Standards      .      .      .      .281 

79.  Planning   Department          282 

80.  Planning  is   Specialized   Management 284 

81.  An  Example  from  the  Machine  Shop 284 

82.  Planning   and    Overhead    Expense 286 

83.  Evolution  of  the  Planning  Department 287 

84.  Thoughtful  Plans  Make  Valuable  Records      .      .      .      .288 

85.  Advantages    of   Planning   in   Advance 289 

86.  Proportion   of   Planners   to   Doers 289 

87.  Planning  Room  of  a  Manufacturing  Concern      .      .      .  290 

88.  Coordinating   Function   of    Production    Clerk      .      .      .  290 

89.  Setting   Sales    Delivery    Dates 291 

90.  Further  Duties  of  Production  Clerk 292 

91.  Qualifications  of  Production  Clerk 294 

92.  Route  Clerk        .      .      ; 294 

93.  Method  of  Work  for  the  Route  Clerk 295 

94.  Qualifications    of    Route    Clerk 296 

95.  Special-material   (Foundry)    Clerk 296 

96.  Duties   of  Balance-of-stores   Clerk 298 

97.  Time-study   Clerk           "...  300 

98.  Instruction-card   Clerk        . 300 

99.  Route-file    Clerk 300 

100.  Order-of-work  Clerk 301 

101.  The  Eye  of  the  Superintendent 302 

102.  The    Recording    Clerk 302 

103.  The   Cost   Clerk 303 

104.  Time-keeper 304 


CONTENTS  xiii 

SECTION  PAGE 

105.  Planning  Introduces  no  new  Duties 305 

106.  Other  Functions  Associated  with  Planning  Department  306 


CHAPTER    VI. 
STANDARDIZATION  AND  EQUIPMENT. 

107.  Management  a  Process  of  Applying  Correct  Standards  307 

108.  Standards   of   Labor   Efficiency 308 

109.  Cautions  in  Adopting  Business  Standards      .      .      .      .310 

110.  Standard    Specifications 311 

111.  Monetary  Savings  due  to  Standard  Materials      .      .      .312 

112.  Standard  Office  Material 312 

113.  Example   of  Standard   Drawings 312 

114.  Standard  Equipment 313 

115.  The  Principle  as  Applied  to  Delivery  Systems      .      .314 

116.  Interchangeable    Parts 315 

117.  Use  of  "  Limiting  Dimensions  " 316 

118.  Use   of   Symbols 316 

119.  Constructing  a  System  of  Symbols 317 

120.  A  Working  System 318 

121.  Use  of  Numbers  in  Symbol 320 

122.  Symbols   of  Manufacturing 320 

123.  Standard   Routine  322 

124.  Steps  in  Developing  Standard  Routine 323 

125.  Value  of  Printed  Records  .    325 


CHAPTER    VII. 
STANDARDIZATION   AND   WAGES. 

126.  Goal  of  Every  Producer 327 

127.  Three  Factors   Conditioning  Output 328 

128.  Determination   of   Handling   Time 330 

129.  Principle  Elements  in  Getting  Efficiency      ....  333 

130.  Wage   Systems          333 

131.  Systems    of    Pay 334 

132.  Taylor  Differential  System 336 

133.  Efficiency   System  337 

134.  Bonus    Plan  .  339 


xiv  CONTENTS 


CHAPTER    VIII. 
CONTROL  OF  LABOR. 

SECTION  PAGE 

135.  High   Cost  of   Man   Power 340 

136.  Waste  of  Human  Power 341 

V—137.     Periods  of  Rest  and  Relaxation 342 

138.  A    Fair    Day's    Pay 344 

139.  Illustrations 344 

140.  Special  Factors  in  Influencing  Wages 346 

141.  Wages  the  Chief  Incentive 348 

142.  Importance   of   Short  Period   Records 349 

143.  Pleasurable    Surroundings 349 

144.  Chilly  Suroundings  Develop  Fear 350 

145.  Stimulating  Self-interest 351 

146.  Checks  Against  Injustice          351 

147.  Elimination  of  the  Unfit 352 

148.  A  Typical  Case  of  the   Use  of   Records      ....  353 

149.  Look  for  the  Particular  Bent  of  the  Business      .      .      .  354 

150.  Permanency  of  Employment  and  Pensions      ....  355 

151.  Hope  of  Advancement  as  a  Stimulus 356 

152.  Three  Examples  of  Promotion  Policies 357 

153.  Selecting  the  "Right  Stripe" 358 

154.  Make  a  Man  Analyze  Himself 360 

155.  Use  of  Written  and  Oral  Tests 362 

156.  Testing  for  Physical  and  Moral  Fitness      ....  363 

157.  Control  by  Education 364 

158.  Special  Training  for  the  Company's  Work      ....  367 

CHAPTER    IX. 
INDUSTRIAL  BETTERMENT  OF  WELFARE  INSTITUTIONS. 

159.  Beginnings   of   Industrial   Betterment 370 

160.  "Welfare   Institutions" 371 

161.  Safety  Devices  against  Accidents  and  Fire    ....  372 

162.  Light 374 

163.  Ventilation 375 

164.  Sanitation 376 

165.  Rest  Hours  and  Lunch  Rooms 377 

166.  Recreation  379 


CONTENTS  xv 

SECTION  PAGE 

167.  Effects    of   Welfare    Institutions    in   General     .      .      .  380 

168.  Suggestion   System 381 

169.  Results  of  Suggestion  Systems 382 


CHAPTER    X. 
SOURCES  OF  ADMINISTRATIVE  INFORMATION. 

170.  Use  of  Statistics 386 

171.  Graphs  and  Statistics 386 

172.  Indicating  Influence  of  One  Set  of  Graphs  on  Another  387 

173.  Comparisons    of   Time   Periods 388 

174.  Reports          388 

175.  Determining  Facts   by  Inspection 390 

176.  Inspection  of  Work  in  Progress 392 

177.  Questions  as  Guides 392 

178.  Qualifications  of  Inspectors 393 

179.  Information    from   the   Outside 394 

180.  Various  Kinds  of  Inspections 394 

181.  Inspection  and  Research 395 

182.  A  Large   Research   Laboratory 396 

183.  Commercial    Results 397 

184.  Time    Study        .     ... 398 

185.  Time  Study   Reduced  to   Formula 401 

186.  Written  Aids,  Books,  Periodicals,  Etc 401 

187.  Study  of  Competitive  Methods      .      .      .      .  *X      .      .  403 

188.  Consulting    Experts 404 


CHAPTER    XI. 
SAVINGS   IN  TIME  AND  MATERIAL. 

189.  Time-saving  by  "Routing" 405 

190.  How  a  Train  is  Routed 406 

191.  Essentials  in  Routing 407 

192.  Securing  a  Good  Plant  Layout 408 

193.  Straight  Line   Between   Terminals 409 

194.  Various  Types  of  Manufacture 409 

195.  Analytic  Manufacture         410 


xvi  CONTENTS 

SECTION  PAGE 

196.  Continuous   Manufacture 410 

197.  Assembling  Manufacture 410 

198.  Passageways  Must  Be  Provided    .      .      .      .      .      .      .   410 

199.  Transportation 411 

200.  Growth   Must  Be  Allowed  for 412 

201.  Expansion  not  to  Interfere  with  Flow  of  Work     .      .413 

202.  Taking  Advantage   of   Gravity 415 

203.  Time  Element  in  Routing 415 

204.  Two  Types  of   Routing 416 

205.  When  Special  Dispatching  Is  Necessary      ....   417 

206.  How   to   Plan   the   Routing 417 

207.  What  the  Route-board  is 419 

208.  Planning    Board    Signals    all    Movements      ....    420 

209.  Questions    Answered    by    Route-board      .      .      .      .    ,  .    420 

210.  Status  of  Work  in  Progress 420 

211.  How  to  Route  Office  Work 425 

212.  Time  Schedule  of  the  Clearing  House 425 

213.  How  Organization  Saves  Time 426 

214.  Substitute  Power  Equipment 426 

215.  Equipment      "Tickler" 427 

216.  Other  Methods   to  Avoid   Shut-downs 427 

217-  Stock-keeping  System  a  Necessity 428 

218.  Three    Rules    of   Store-keeping 429 

219.  Receiving  Supplies 429 

220.  Issuing    Supplies 431 

221.  How  to  Use  Requisitions 432 

222.  Bill-of-Materials 433 

223.  Combination  Systems 433 

224.  Complete    and    Simple    System 434 

225.  Single  and  Double  Check  System 435 

226.  Responsibility    for    Remainder    on    Hand      ....    435 

227.  Stock-room    Protects    Goods 436 

228.  Classification  by  Kind 436 

229.  Size  Materials  When  Checking 438 

230.  Stock  Ledger  and  Inventory -taking 438 

231.  Provide  a  Surplus  of  the  Less  Expensive      ....   439 

232.  Small  Savings 441 

233.  Office  Work 442 

234.  Unnecessary   Shifting  Involves   Work 444 


CONTENTS  xvii 

SECTION  PAGE 

235.  "Fill-in"  Work 44-5 

236.  Waste  Motion 446 

237.  Using  Supplies  a  Second  Time 447 

CHAPTER    XII. 
OFFICE  METHODS. 

238.  Function  of  the  Office 449 

239.  Elements  of  Management  Applied 451 

240.  Office  Head 452 

241.  Selecting  and  Handling  Employes 453 

242.  Establishing    Standards 456 

243.  Military  Type  of  Organization 457 

244.  Functional   Type 458 

245.  Semi-Functional   Organization 460 

246.  Committee  System 461 

247.  Suggestion    Systems 461 

248.  Arrangement  and  Lighting  of  the  Office        ....  462 

249.  Conclusion  .  464 


BUSINESS  ORGANIZATION 

PART  I 

CHAPTER  I 

DEVELOPMENT  OF  ORGANIZATION 

1.  Organization^  a  logical  arrangement  of  parts.-)— 

business  organization  is  the  machine  by  means  of 
which  the  forces  of  industry  make  themselves  effective.) 
An  efficient  organization,  like  a  good  machine,  must 
work  with  a  minimum  loss  of  energy.  Every  pound  of 
steam  uselessly  dissipated  must  detract  from  the  effi- 
ciency of  the  engine  as  a  means  of  transport.  The 
power  that  is  to  be  directed  by  means  of  the  locomotive 
engine  should  not  be  spent  in  carrying  superfluous 
machinery  and  fuel,  nor  in  climbing  unnecessary  grades, 
nor  in  overcoming  needless  friction.  Likewise,  a  busi- 
ness organization  which  is  to  direct  the  power  of  capital 
and  labor  through  a  long  process  of  production,  should 
not  permit  a  dissipation  of  energy.  Many  a  business, 
by  carrying  surplus  stock,  by  assembling  goods  under 
improper  physical  organization,  and  by  running  under 
needless  friction  due  to  poor  management  of  labor,  is 
wasting  energy  which  should  be  realized  in  the  profits. 

To  secure  efficiency  in  the  business  machine  it  is  nec- 
essary also  to  control  the  organization  through  intelli- 
gent direction.  The  principles  of  efficient  management 
are  discussed  in  Part  II  of  this  volume. 

As  a  machine  is  more  easily  explained  when  the  nature 
II— i 


2  BUSINESS  ORGANIZATION 

of  the  power  which  it  is  to  controlis  understood,  so  the 
organization  of  any  business  is  more  readily  understood 
if  the  forces  which  the  organization  is  to  direct  are  fully 
comprehended.  Steam  and  electricity  stand  in  the  same 
relation  to  the  present  mechanical  world  that  capital 
and  labor  do  to  the  modern  forms  of  business.  v  In  fact, 
we  may  say  that  a  study  of  capital  and  labor  has  ref- 
erence to  the  activities  of  industry,  while  a  study  of  the 
organization  pertains  to  the  forms  of  business.  \ 

A  history  of  industrial  systems  is  a  record  of  the 
growth  of  capital  and  the  consequent  division  of  labor. 
The  interactions  of  these  two  forces  of  production  are 
the  cause  of  that  industrial  evolution  which  began  with 
the  simplest  form — that  of  private  production  for 
private  consumption,  and  which  has  developed  into  our 
present  system  of  machine  production  for  the  world 
market. 

Z.^Early  economic  man. — Each  stage  in  this  long  de- 
velopment has  had  its  own  peculiar  organization — the 
typical  business  enterprise — this  being  determined  by 
the  proportion  of  capital  to  labor  and  the  degree  of  co- 
operation between  these  forces.  The  word  "business" 
originally  meant  "being  busy"  in  making  a  living,  which 
the  primitive  man  without  tools  was  compelled  to  do  with 
his  bare  hands.  He  was  the  first  type  of  a  "business" 
man  in  the  original  sense  of  the  word.  Bodily  activity 
and  insecurity  were  the  main  characteristics  of  such  a 
life  since  each  individual  depended  solely  upon  his  own 
labor  power  to  win  from  capricious  nature  the  immediate 
necessities  of  life.  He  had  no  stock  of  tools  nor  food, 
nor  in  a  word — capital — whereby  he  might  make  his 
labor  power  more  effective,  and  thus  secure  that  leisure 
which  depends  upon  a  surplus  supply  of  the  necessaries 
of  life. 


DEVELOPMENT  OF  ORGANIZATION  3 

The  most  primitive  man,  as  we  know  him,  wandered 
about  with  his  companions,  who  had  much  the  same  de- 
gree of  organization  as  a  herd  of  cattle  or  a  flock  of 
sheep.  The  leading  "business"  man  of  such  an  aggre- 
gation had  about  the  same  function  as  the  aggressive 
leader  of  the  drove.  ^Cooperation,  which  is  the  purpose 
of  any  organization,  was  absent  in  any  economic  sense,* 
and  only  in  the  presence  of  danger  did  the  horde  display 
a  knowledge  of  the  advantages  to  be  gained  from  com- 
bined effort. 

Not  until  the  family  appears  do  we  find  a  new  mo- 
tive for  the  cooperation  of  the  individuals  of  the  society. 
New  motives  alter  conditions.  Here  for  the  first  time 
men  began  to  work  together  for  the  common  purpose  of 
making  a  living.  This  new  organization  based  on 
economic  activity  still  limited  itself  to  securing  "just 
enough"  to  live.  It  did  not  seek  to  add  a  surplus  to  this 
competence.  The  "household"  was  the  unit  of  this  in- 
dustrial enterprise.  A  circle  drawn  about  each  family 
would  have  circumscribed  all  its  activities.  There  were 
no  interrelations  with  other  families.  The  business  un- 
dertakings of  one  household  did  not  interfere  with  or  in- 
fluence those  of  the  neighbors.  That  is  to  say,  produc- 
tion was  of  the  people,  by  the  people,  and  for  the  people 
of  each  particular  family. 

The  benefits  of  cooperation  under  this  form  of  eco- 
nomic organization  were  soon  displayed.  The  group 
discovered  that  it  could  win  from  nature  not  only  a  com- 
petence but  something  more.  Within  each  community 
there  was  accumulated  a  stock  of  goods.  This  had  the 
effect  of  giving  the  masters  of  the  households  more 
leisure.  As  the  surplus  increased  there  would  be  not 
only  the  disposition  to  exchange  these  goods  for  differ- 
ent kinds  possessed  by  other  households,  but  the  possi- 


4  BUSINESS  ORGANIZATION 

bility  for  the  master  to  let  out  any.  surplus  labor  force 
which  might  have  resulted  from  a  more  efficient  organ- 
ization. 

Movements  are  always  slow  in  the  beginning,  but  as 
soon  as  capital  gained  a  lodging  in  the  industrial  systems 
the  cumulative  effect  of  numberless  small  increments 
was  momentous.  Small  bits  of  capital  planted  and 
nurtured  in  thousands  of  families  by  this  primitive  co- 
operation began  to  swell  and  expand  until  the  bands  of 
these  little  isolated  and  exclusive  industrial  organiza- 
tions were  burst  by  the  pressure,  and  the  forces  of  pro- 
duction were  liberated.  Capital  and  labor  flowed  in 
many  directions,  seeking  new  levels,  wearing  new  chan- 
nels. Other  lines  of  activity  were  furnished  with  fresh 
streams  of  power,  and  production  was  not  only  in- 
creased, but  it  resulted  in  varied  forms  of  organization 
as  well.  Capital,  thus  freed,  began  to  seek  introduc- 
tion to  other  households,  and  the  laborer,  more  inde- 
pendent, sought  to  employ  his  skill  by  joining  his  serv- 
ices now  to  this  household  and  now  to  that.  The  in- 
crease of  capital  in  proportion  to  the  labor  force  wrought 
an  entire  transformation  of  the  family  organization, 
since  it  allowed  its  members  to  step  beyond  its  bounds 
and  engage  in  new  forms  of  independent  activities. 

3.  Influence  of  new  economic  activities. — Under  the 
family  system  there  was  no  capital  except  in  such  aux- 
iliary forms  of  production  as  the  distaff,  the  handmill 
and  the  ax.  The  laborer  was  not  free.  He  was  tied 
to  the  land,  and  industrial  skill  was  closely  associated 
with  the  care  of  the  soil.  Furthermore,  there  was  little 
or  no  commerce,  as  each  group  made  all  that  it  con- 
sumed. xBut  when  production  increased  to  the  extent 
that  each  group  had  a  surplus,  conditions  were  estab- 
lished whereby  trade  was  sure  to  develop.^  This  sur- 


DEVELOPMENT  OF  ORGANIZATION  5 

plus  generally  consisted  of  the  prime  necessities  of  life, 
such  as  articles  of  food  and  clothing.  But  under  the 
isolated  system  of  economy  then  existing  there  were  no 
means  whereby  the  surplus  of  one  household  could  be 
exchanged  for  that  of  another.  Household  economy 
alternated  between  the  extremes  of  want  in  one  season 
and  waste  in  another.  This  brought  men  to  recognize 
the  value  of  trading  their  surplus. 

\Commerce  consists  simply  of  the  exchange  of  the  sur- 
plus goods  of  one  community  for  those  of  a  different  | 
kind  in  another  community.  >  Therefore,  before  the  in- 
dustrial organization  of  the  world  could  receive  a  new 
kind  of  enterprise  in  the  form  of  commercial  relations, 
there  must  first  have  existed  the  surplus  wealth,  the  ex- 
change of  which  constitutes  commerce.  So  the  growth 
of  a  stock  of  wealth  not  only  transformed  the  relations 
of  the  members  of  the  household  to  each  other,  but  it 
changed  the  relationship  existing  between  different 
households  and  finally  the  relations  between  localities  to 
the  nation  as  a  whole.  In  time  the  interrelations  of 
nations  themselves  became  dependent  upon  this  surplus 
wealth. 

At  present,  however,  we  are  concerned  with  the 
changes  wrought  in  the  business  unit  as  represented  by 
the  family.  It  is  necessary  to  keep  in  mind  that  a  new 
economic  activity  has  been  created  whose  reaction  upon 
the  old  methods  of  production  must  in  a  later  period  be 
treated  almost  as  an  independent  cause  in  the  shaping 
of  economic  organization.  The  itinerant  workingman 
gradually  acquired  some  surplus  wealth  of  his  own  in 
the  form  of  tools,  and  with  this  capital  he  was  able  to 
separate  himself  entirely  from  the  family  group  and  to 
set  up  for  himself  a  permanent  workshop.  With  the 
aid  of  increasing  capital  this  class  of  men  in  time  be- 


6  BUSINESS  ORGANIZATION 

came  strong  enough  to  effect  a  complete  separation  and 
to  establish  a  new  organization  in  industrial  society.  In 
their  turn,  these  men  became  masters,  not  of  agricul- 
tural laborers  and  estates,  but  masters  of  crafts  and  arti- 
sans. 

4.  \The  town  becomes  a  new  economic  unit. — Under 
this  system  of  industry  the  typical  business  unit  was  the 
"craft"  or  "trade."  The  man  who  made  things  by  hand 
was  the  "manufacturer,"  but  he  possessed  all  the  means 
necessary  to  that  production  in  his  own  right.  He 
owned  the  tools  and  the  raw  material,  and  by  his  own 
labor  or  under  his  direct  supervision  the  article  produced 
passed  through  all  the  stages  of  manufacture.  The 
size  of  the  representative  firm  under  a  system  which  com- 
pelled the  master  to  be  a  skilled  artisan,  a  shrewd  finan- 
cier, and  an  able  salesman,  but  insisted  on  each  article 
bearing  the  impress  of  his  individual  skill,  must  of  ne- 
cessity have  been  very  small.  That  this  type  persisted 
so  long  and  became  so  general  throughout  the  fields  of 
productive  activity  was  due  to  the  relatively  small  im- 
portance of  the  master's  capacity  as  a  financier  and 
sales  manager  as  compared  with  his  ability  as  a  crafts- 
man.  NThe  proportion  of  capital  to  labor  power  neces- 
i  sary  for  production  was  small,  y  The  master  did,  indeed, 
own  the  raw  material  in  addition  to  his  tools,  but  there 
was  no  need  for  great  capital  in  either,  as  the  variety  of 
the  articles  demanded  was  limited  by  the  customs  and 
tastes  of  his  own  community  which  was  still  isolated  and 
secluded  even  though  it  now  embraced  within  its  bound- 
aries the  "town"  instead  of  the  "family."  The  growth 
of  the  economic  unit  which  was  now  comprehended  in 
the  town  meant  also  a  great  advance  in  the  productive 
capacity  of  society  and  a  corresponding  increase  of  cap- 
ital. Yet  self  sufficiency  and  isolation  still  kept  com- 


DEVELOPMENT  OF  ORGANIZATION  7 

munities  separated,  and  while  one  locality  was  suffering 
for  the  lack  of  some  article,  another  would  be  greatly 
over-supplied  with  the  same  thing. 

The  town  owed  its  development  to  the  increased 
specialization  of  industry.  The  rise  of  the  artisan  class 
divided  the  field  of  production.  The  landowner  still 
supplied  the  raw  material,  but  the  new  class  of  artisans 
furnished  the  finished  product.  The  latter  found  it  de- 
sirable to  congregate  in  small  communities  or  towns,  and 
while  the  conditions  of  the  market  did  not  demand  that 
the  artisan  possess  a  large  fixed  capital  in  the  form  of 
extensive  machinery,  nevertheless  there  again  appeared 
the  advantages  of  social  cooperation,  and  abundant 
movable  capital  accumulated  in  the  hands  of  this  new  in- 
dustrial class.  Then,  too,  the  presence  of  more  wealth 
had  the  effect  of  changing  the  relations  of  members  of 
this  handicraft  system.  It  furnished  the  basis  for  more 
specialization  within  the  crafts  themselves,  and  at  the 
same  time  stimulated  trade  between  the  farm — the 
source  of  the  raw  material,  and  the  town — the  place  of 
its  manufacture. 

Then  there  sprang  up  a  class  of  men  who  saw  an  op- 
portunity to  equalize  the  economic  disparities  between 
localities.  They  devoted  themselves  to  trade.  Like  the 
artisan  class,  these  merchants  furnished  their  own 
trading  capital,  captained  their  own  ventures  and  super- 
vised the  marketing  of  their  own  goods.  The  business 
unit  was  small  and  the  organization  simple.  But  one 
must  bear  in  mind  that  a  new  business  enterprise  be- 
comes clearly  differentiated.  The  peddler  of  the  transi- 
tion period,  during  which  the  industrial  unit  shifted 
from  the  family  to  the  town,  became  a  merchant.  (  So 
by  the  end  of  the  Middle  Ages  there  were  three  distinct 
classes  in  Europe,  each  devoting  its  energies  principally 


8  BUSINESS  ORGANIZATION 

to  one  branch  of  industry.  The  landowner  in  the  coun- 
try grew  the  raw  material,  the  artisan  in  the  town  pre- 
pared it  for  the  market,  and  the  merchant,  also  of  the 
town,  assumed  the  risk  of  finding  a  purchaser.}  Yet  it 
was  in  the  hands  of  the  manufacturer  and  the  merchant 
that  movable  property  accumulated  fastest,  and  more 
especially  was  this  true  of  the  latter. 

5.  "Town  economy"  shows  the  benefits  of  association. 
—Although  the  conditions  of  production  in  agriculture 
were  decidedly  better,  especially  for  the  laborer,  than  be- 
fore, and  although  an  increased  productivity  supported 
a  larger  population  and  furnished  a  basis  for  the  grow- 
ing trade,  still  they  failed  to  take  on  that  development 
manifested  in  the  towns.  The  artisans  and  the  mer- 
chants, on  the  other  hand,  had  long  known  the  benefits 
to  be  derived  from  close  association.  Each  class  had  been 
compelled  in  the  absence  of  any  other  protection  to  form 
societies  for  self  defense.  Cut-throats  in  those  days 
were  not  solely  associated  with  business  competition.1 
Later,  however,  the  crafts  and  guilds,  as  these  societies 
were  called,  adopted  distinct  business  policies,  and  it  is 
for  this  reason  that  we  mention  them.  Tested  by  its 
policies,  the  nature  of  the  guilds  discloses  itself  in  the 
following  summary: 

*  1.  The  basis  of  association  was  men,  not  capital,  or 
division  of  profits.  The  men  desired  to  regulate  their 
particular  business  independently  of  other  crafts. 

2.  The  purpose  was  efficiency  of  workmanship  and 
trustworthiness  in  products. 

i "  The  Victual  Brothers  formed  an  organization  modeled  after  that  of 
the  Knights  Templars,  for  carrying  on  piracy;  their  motto  was  'God's  friend 
and  all  the  world's  enemy.'  They  had  a  stronghold  at  Gotland,  in  the 
Baltic  Sea,  and  were  long  a  terror  to  traders  and  fishermen;  their  power 
was  broken  in  1394  only  by  a  fleet  of  thirty-five  ships  sent  against  them." 
— Clive  Day,  "  A  History  of  Commerce." 


DEVELOPMENT  OF  ORGANIZATION  9 

3.  The  conditions  of  membership   included  at  first 
all  who  bought  and  sold,  as  well  as  all  artisans;  later 
they  restricted  themselves  to  professional  craftsmen  and 
merchants. 

4.  In  so  far  as  the  character  of  the  regulations  was 
concerned,  in  general,  they  promoted  fraternal  relations 
between  members,  fair  dealing  in  the  interests  of  the 
trade  as  a  whole;  and  in  a  special  way,  they  provided 
times  and  places  for  holding  particular  markets,  passed 
upon  the  qualities  of  the  goods,  determined  prices  and 
decided  upon  methods  of  bargaining.1 

5.  In  regard  to  competition,  all  rivalry  among  mem- 
bers was  denounced,  while  outside  rivals — "foreigners," 
or  persons  from  any  other  town,  were  permitted  only  to 
enter  the  town  and  sell  their  wares  at  wholesale.     They 
could  not  purchase  goods  which  the  townspeople  wanted 
for  themselves. 

6.  In  regard  to  the  guild  relation  to  the  government 
of  the  town,  burgership  depended  on  guild  membership, 
and  at  the  height  of  power  they  secured  a  political  dom- 
ination.    The  king  gave  the  inhabitants  of  some  towns 
special  privileges,  which  meant  that  the  guilds  secured 
monopoly  of  the  trade  and  that  prices  were  regulated  by 
municipal  laws.     But  this  had  to  be  given  up,  especially 
in  the  case  of  wheat,  for  high  prices  for  this  commodity 
induced  an  increase  of  supply.     If  the  price  was  set  too 
low  for  a  staple  ware,  the  ware  was  no  longer  offered. 
The  government,  finding  it  impossible  to  fix  a  price  for 
bread,  established  the  "assize^  of  bread,"  a  sliding  scale 
by  which  the  price  and  weight  of  a  loaf  was  set  by  the 
market  price  of  wheat.     This  system  was  applied  to  ale 
also  and  these  assizes  lasted  until  the  Nineteenth  Century 
in  some  places. 

i  Seager,  "  Introduction  to  the  Study  of  Economics,"  page  6. 


10  BUSINESS    ORGANIZATION 

7.  The  staple  handicraftsmen  were  the  butchers, 
bakers,  brewers,  blacksmiths,  masons,  shoemakers,  sad- 
dlers, carpenters,  cabinet-makers,  weavers,  dyers,  fullers, 
tailors,  goldsmiths,  coppersmiths,  harness-makers,  tan- 
ners and  furriers. 

6.  Comparative  importance  of  labor  and  capital  in 
the  handicrafts  system.-\-The  long  endurance  of  this 
system  of  industry  is  accounted  for  by  the  small  amount 
of  capital  necessary  to  enable  a  man  to  enter  into  a  busi- 
ness on  his  own  account. )  Not  only  the  master's  skill, 
but  the  power  too,  was  furnished  by  man.  The  part 
that  labor  took  in  production  was  much  greater  than  the 
part  which  capital  furnished.  But  the  same  forces 
which  burst  the  bonds  that  confined  industry  to  the  fam- 
ily, again  broke  through  the  limitations  set  by  a  local 
town  economy.  Circulating  capital  accumulated  in  the 
hands  of  some  guilds  faster  than  in  others.  It  became 
evident,  too,  that  certain  individual  members  of  the 
guilds  were  gathering  to  themselves  greater  quantities 
of  wealth  than  their  brothers.  At  the  same  time  labor 
was  becoming  redundant,  v  So  while  the  richer  members 
of  the  town  were  looking  for  larger  chances  of  invest- 
ment and  the  poorer  artisans  were  seeking  for  wider  op- 
portunities of  employment,  there  arose  internal  bicker- 
ings which  gradually  undermined  the  guild  structure 
from  within.  \ 

At  the  same  time  a  strong  influence  was  having  a  sim- 
ilar effect  from  without.  This  was  the  growing  demand 
for  goods.  The  handicraftsman  made  his  wares  ac- 
cording to  the  tastes  and  orders  of  his  customers.  The 
customers  were  men  well  known  and  were  comparatively 
few  in  number.  Therefore  the  work  of  the  handicrafts- 
man was  limited  in  variety  and  quantity  and  each  factor 
could  be  easily  and  constantly  ascertained.  The  pro- 


DEVELOPMENT  OF  ORGANIZATION  11 

ducer  was  relieved  of  the  necessity  for  keeping  large 
stores  of  goods  on  hand,  and  also  of  maintaining  a  big 
plant.  From  the  point  of  view  of  the  customer,  who 
really  determined  the  character  and  size  of  the  business 
unit,  this  system  of  industry  is  sometimes  called  "custom  < 
production."  \  The  change  in  the  character  of  the  cus- 
tomer's demands  was  the  second  cause  for  the  gradual 
displacement  of  a  system  whose  production  was  by  hand, 
whose  activities  were  so  peculiar  to  the  town,  and  whose 
organization  from  a  business  point  of  view  was  so  simple/^ 

Before  we  begin  to  trace  the  changes  caused  by  a 
further  growth  of  wealth  and  the  extension  of  the 
market,  it  may  be  well  to  summarize  the  principal  facts 
pertaining  to  the  handicraft  system.1  It  will  serve  not 
only  to  bring  into  contrast  the  conditions  under  the 
earlier  family  system  and  that  period  of  transition  from 
the  family  to  the  handicraft  system,  but  will  afford,  too, 
a  desirable  point  from  which  to  trace  the  later  industrial 
developments.  In  the  handicraft  system  we  have  what 
many  are  inclined  to  believe  a  normal  system  of  business 
relations.  There  is  a  gradual  advancement  for  the  la- 
borer, both  socially  and  economically.  From  the  po- 
sition of  apprentice  he  gradually  progresses  to  the  posi- 
tion of  the  independent  master,  receiving  at  all  stages 
an  income  proportionate  to  his  services.  As  master  he 
produces  with  his  own  hand,  directs  his  own  capital  and 
supplies  goods  for  a  known  group  of  customers,  while  in 
return  he  gets  an  exact  equivalent  for  his  labor.2 

7.  Second  transitional  period — domestic  system. — So 
closely  allied  are  the  meanings  of  the  words  domestic, 
household  and  family  in  the  Anglo-Saxon  languages 
that  much  confusion  has  arisen  in  the  use  of  these  names 
for  distinguishing  different  systems  of  industry.  It  is 

*  See  page  12. 

2  "  Industrial  Evolution,"  by  Carl  Biicher,  page  160. 


BUSINESS  ORGANIZATION 


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DEVELOPMENT  OF  ORGANIZATION  13 

natural  that  the  earlier  writers  should  emphasize  the 
differences  which  were  presented  from  the  point  of  view 
of  labor.  \Accordingly  we  find  the  history  of  industrial 
development  divided  into  periods  conforming  to  the 
relative  freedom  of  the  laborer. )  Did  the  prevailing  sys- 
tem employ  slave,  serf  or  free  labor?  Were  the  rights 
of  the  laborer  protected  by  custom  or  contract,  etc.,? 
^Another  way  of  distinguishing  the  epochs  of  economic 
development  was  to  characterize  the  periods  according 
to  the  place  where  the  work  was  carried  on.  Therefore 
we  get  the  familiar  division  of  "family,"  "domestic," 
and  "factory  systems."; 

From  this  point  of  view  there  is  little  distinction  be- 
tween the  handicraft  system  and  the  domestic  system, 
but  during  the  latter  period  there  were  other  develop- 
ments affecting  the  industrial  organization  which  are  as 
necessary  to  be  observed  as  the  status  or  condition  of 
labor.  \From  the  view  point  of  the  capitalist  and  the 
entrepreneur,  this  period  marks  the  beginning  of  a  new 
differentiation  in  the  employment  and  management  of 
capital. )  From  the  view  point  of  labor,  the  period  may 
be  called  the  domestic  system  only  when  contrasted  with 
the  period  which  follows,  that  is,  the  factory  system.  It 
is  noticeable,  however,  that  neither  the  capitalist  nor  the 
laborer  have  their  functions  so  clearly  separated  or  so 
closely  united  as  under  the  factory  system  or  the  pre- 
vious handicraft  system;  hence  the  appellation  transi- 
tional period  is  more  significant  and  less  liable  to  be 
confused  than  the  older  expression — domestic  system. 

8.  Extension  of  national  government — appearance 
of  middle  men. — It  would  be  difficult  to  understand 
the  changes  that  the  economic  organization  underwent 
in  this  period,  if  reference  were  not  made  to  the  state. 
Economically,  this  was  manifested  in  the  extension  of 


14  BUSINESS  ORGANIZATION 

the  national  power  over  the  domain  of  commerce  and 
industry.  The  national  government  had  been  growing 
in  strength  and  power.  The  protection  it  was  able  to 
offer  its  citizens  allowed  them  more  time  and  energy 
for  the  production  of  wealth.  It  permitted  them  to 
live  outside  the  barricaded  towns  and  also  allowed  men 
to  spread  out  over  the  country  in  groups — not  military 
assemblages,  but  industrial  clusters — which  were  the  be- 
ginnings of  a  national  division  of  industry.  As  men  or 
groups  of  men  engaged  in  different  industries  became 
more  separated,  it  was  natural  that  a  class  of  men 
should  arise  whose  chief  function  was  to  supply  the 
various  groups  with  the  products  which  each  lacked. 
The  strengthened  national  governments  helped  this  in- 
terchange of  products  as  well  as  the  growth  of  capital. 
They  offered  increased  protection  to  both. 

This  transitional  period  comes  at  different  times  in 
different  countries  but  in  England  it  extends  from  the 
middle  of  the  Fifteenth  Century  to  the  middle  of  the 
Eighteenth.  Defoe,  in  his  tour  through  Great  Britain 
(1724-1726),  describes  the  situation  thus: 

The  land  was  divided  into  small  inclosures  from  two  acres  to 
six  or  seven  each,  seldom  more;  every  three  or  four  pieces  of 
land  had  an  house  belonging  to  them,  .  .  .  hardly  an 
house  standing  out  of  a  speaking  distance  from  another. 
.  .  .  We  could  see  at  every  house  a  tenter,  and  on  almost 
every  tenter  a  piece  of  cloth  or  kersie  or  shalon.  ...  At 
every  considerable  house  was  a  manufactory.  .  .  .  Every 
clothier  keeps  one  horse,  at  least,  to  carry  his  manufac- 
tures to  the  market,  and  every  one  generally  keeps  a  cow  or  two 
or  more  for  his  family.  By  this  means  the  small  pieces  of  en- 
closed land  about  each  house  are  occupied,  for  they  scarce  sow 
corn  enough  to  feed  their  poultry.  .  .  .  The  houses  are 
full  of  lusty  fellows,  some  at  the  dye-vat,  some  at  the  looms, 


DEVELOPMENT  OF  ORGANIZATION  15 

others  dressing  the  cloths;  the  women  or  children  carding  or 
spinning,  being  all  employed,  from  the  youngest  to  the  oldest. 

The  clothing  trade  was  the  most  highly  developed, 
and  it  is  here  that  labor  and  capital  in  business  began 
to  show  their  combined  force  under  new  relations  to  each 
other.  Besides  the  "clothiers"  mentioned  by  Defoe,  who 
seemed  to  combine  the  double  function  of  middleman, 
collectors  and  distributors,  there  was  a  class  of  "fac- 
tors" who  devoted  themselves  exclusively  to  buying 
wool  from  the  farmers  and  selling  it  to  the  "clothiers." 
Another  class  of  middlemen  forwarded  the  goods  to  the 
retailer  after  they  were  finished.  This  class  consisted 
of  three  types,  each  distinguished  by  the  method  pur- 
sued in  reaching  the  retail  trade.  \First,  there  was  the 
wholesale  dealer  who  attended  the  big  fairs  or  markets. 
He  made  large  purchases  and  then  traveled  over  the 
country  with  his  packhorse  for  the  purpose  of  selling 
to  the  retailers.  Secondly,  there  was  the  merchant  who 
bought  the  goods  and  then  sent  them  out  of  the  coun- 
try. He  was  the  exporter.  Third,  there  was  a  com- 
posite type  of  distributor,  who,  on  the  one  hand,  was  a 
commission  man  who  bought  from  the  clothiers  and  de- 
livered to  their  "factors"  in  London,  and  on  the  other 
hand,  acted  as  a  warehouseman  and  looked  after  the 
disposition  of  the  goods  to  the  home  trader  and  foreign 
exporter.  \ 

So  we  see  that  although  industry  was  still  carried  on 
by  hand  in  a  small  way,  the  functions  of  merchants  and 
workman  were  separated.  Although  the  merchant  was 
not  yet  a  capitalist  nor  the  workman  a  manufacturer  in 
the  modern  acceptance  of  the  terms,  still  there  is  a  dis- 
tinct line  of  cleavage  between  the  men  who  furnish  the 

J  a  The  Evolution  of  Modern  Capitalism,"  by  John  A.  Hobson,  page  59. 


16  BUSINESS  ORGANIZATION 

capital  and  those  who  give  their  labor^^The  merchant 
class  arose  during  this  time  and  towa:ro(the  ei^of  the 
period  became  the  capitalists  of  their  day/^^^he  be- 
ginning of  this  period  the  workman  owned  his  own 
tools  and  conducted  his  work  at  his  own  home,  but  re- 
ceived the  raw  materials  from  one  middleman  and  de- 
livered his  goods  to  another;  but  he  gradually  lost  con- 
trol of  his  other  capital  possessions — his  tools,  which  were 
furnished  by  the  merchant  also  during  the  latter  part  of 
the  period.  The  gradual  loss  of  the  economic  inde- 
pendence of  the  laborer  is  noticeable. 

9.  Organization  of  capital  investments  by  the  use 
of  "joint  stocks/' — Although  we  see  here  the  growing 
importance  of  capital  and  its  divorcement  from  the  con- 
trol of  the  laborer,  still  the  business  organization  of 
capital  was  very  defective.  Commercial  banking  and 
credit  systems  were  unknown.  Each  merchant  fur- 
nished his  own  capital,  and  outside  of  the  use  of  the  co- 
partnership principle,  there  was  very  little  capitalistic 
cooperation  in  the  field  of  productive  industry.  The 
first  appearance  of  the  joint-ownership  of  large  capi- 
tals for  business  purposes  came  in  the  field  of  the  mer- 
chant's activities.  The  company  form  of  organization 
was  adopted  by  the  great  trading  companies  of  the  Six- 
teenth and  Seventeenth  Centuries.  vThe  East  India 
Company  and  the  Hudson  Bay  Company  are  familiar 
examples  of  the  early  application  of  this  joint-stock 
principle  to  business  enterprise.  \  Men  had  so  little  ex- 
perience, however,  with  the  manipulation  of  great  capi- 
talistic enterprises,  that  few  would  venture  their  wealth 
unless  their  company  was  granted  a  monopoly  by  the 
government.  But  with  the  opening  up  of  foreign 
markets  and  the  demand  thus  occasioned  for  manufac- 
tured goods,  men  began  to  seek  new  methods  by  which 


DEVELOPMENT  OF  ORGANIZATION  17 


these  coulty^rf^plied.  Toward  the  end  of  the  Eigh- 
teenth ^|HPJ^r  therefore,  we  observe  a  tendency  to 
bring  about  an  extension  of  the  joint-ownership  of  cap- 
ital and  a  more  effective  combination  of  labor  units  in 
the  business  of  manufacturing. 

Mr.  Cunningham  cites  the  example  of  a  company 
which  in  1764  was  formed  with  a  capital  of  £100,000 
for  the  manufacture  of  fine  cambrics,  but  which  made 
little  progress  on  the  whole  until  the  next  century,  when 
the  joint-stock  principle  was  applied  to  production. 
The  most  important  changes  were  brought  about  in  at- 
tempting to  apply  capital  more  lucratively  by  inventing 
labor  saving  machinery  and  in  bringing  the  labor  units 
into  a  more  effective  combination.  The  following  ex- 
tract from  the  report  of  a  parliamentary  committee  on 
the  woolen  manufacture  in  England  in  1806  shows  the 
condition  under  which  the  domestic  system  was  breaking 
up  on  account  of  the  new  influences. 

It  may  be  expedient  for  your  committee  to  state  that  there 
are  different  modes  of  carrying  on  the  woolen  manufacture  — 
that  of  the  master  clothier  of  the  west  of  England,  the  factory 
and  the  domestic  system. 

In  all  the  western  countries  as  well  as  in  the  north  there  are 
factories,  but  the  master  clothier  of  the  west  of  England  buys 
his  wool  from  the  importer,  if  it  be  foreign,  or  in  the  fleece,  or 
of  the  wool  stapler,  if  it  be  of  domestic  growth;  after  which, 
in  all  the  different  processes  through  which  it  passes  he  is  under 
the  necessity  of  employing  as  many  distinct  classes  of  persons  ; 
sometimes  working  in  their  own  houses,  sometimes  in  those  of 
the  master  clothier,  but  none  of  them  going  out  of  their  proper 
line.  Each  class  of  workmen,  however,  acquires  great  skill  in 
performing  its  particular  operation.  .  .  . 

In  the  factory  system  the  master  manufacturers,  who  some- 

times possess  very  great  capital,  employ  in  one  or  more  build- 
II—  2 


18  BUSINESS  ORGANIZATION 

ings  or  factories,  under  their  own  or  thej^.superintendent's 
inspection,  a  number  of  workmen,  more  or  fewer  according  to 
the  extent  of  their  trade.  This  system,  it  is  obvious,  admits  in 
practice  of  local  variations.  But  both  in  the  system  of  the 
west  of  England  clothier  and  in  the  factory  system  the  work, 
generally  speaking,  is  done  by  persons  who  have  no  property  in 
the  goods  they  manufacture,  for  in  this  consists  the  essential 
distinction  between  the  two  former  systems  and  the  domestic. 

In  the  last-mentioned  or  domestic  system,  which  is  that  of 
Yorkshire,  the  manufacture  is  conducted  by  a  multitude  of  mas- 
ter manufacturers  generally  possessing  a  very  small  and  scarcely 
ever  any  great  extent  of  capital.  They  buy  the  wool  of  the 
dealer;  and  in  their  own  houses,  assisted  by  their  wives  and 
children,  and  from  two  or  three  to  six  or  seven  journeymen, 
then  dye  it  (when  dyeing  is  necessary)  and  through  all  the  dif- 
ferent stages  work  it  up  into  undressed  cloth. 

Various  processes,  however,  the  chief  of  which  were  formerly 
done  by  hand  under  the  manufacturer's  own  roof,  are  now  per- 
formed by  machinery  in  public  mills,  as  they  are  called,  which 
work  for  hire.  There  are  several  mills  near  every  manufactur- 
ing village,  so  that  the  manufacturer,  with  little  inconvenience 
or  loss  of  time,  carries  thither  his  goods  and  fetches  them  back 
again  when  the  process  is  completed.  When  it  has  attained  to 
the  state  of  undressed  cloth  he  carries  it  on  the  market  day  to  a 
public  hall  or  market  where  the  merchants  repair  to  purchase. 
Several  thousands  of  these  small  master  manufacturers  attend 
the  market  at  Leeds,  where  there  are  three  halls  for  the  expo- 
sure and  sale  of  their  cloths.  .  .  . 

Though  the  system  which  has  been  just  described  be  that 
which  has  been  generally  established  in  the  West  Riding  of 
Yorkshire,  yet  there  have  long  been  a  few  factories  in  the  neigh- 
borhood of  Halifax  and  Huddersfield ;  and  four  or  five  more. 
.  .  .  These  have  for  some  time  been  objects  of  great  jeal- 
ousy to  the  domestic  clothiers. 

Your  committee  cannot  wonder  that  the  domestic  clothiers  of 
Yorkshire  are  warmly  attached  to  their  accustomed  mode  of  car- 


DEVELOPMENT  OF  ORGANIZATION  19 

rying  on  the  manufacture.  It  is  not  merely  that  they  are  ac- 
customed to  it — it  obviously  possesses  many  eminent  advantages 
seldom  found  in  a  great  manufacture. 

It  is  one  peculiar  recommendation  of  the  domestic  system  of 
manufacture  that,  as  it  has  been  expressly  stated  to  your  com- 
mittee, a  young  man  of  good  character  can  always  obtain  credit 
for  as  much  wool  as  will  enable  him  to  set  up  as  a  little  master 
manufacturer,  and  the  public  mills,  which  are  now  established  in 
all  parts  of  the  clothing  district,  and  which  work  for  hire  at  an 
easy  rate,  enable  him  to  command  the  use  of  very  expensive  and 
complicated  machines,  the  construction  and  necessary  repairs  of 
which  would  require  a  considerable  capital.  Thus  instances  not 
unfrequently  occur  wherein  men  rise  from  low  beginnings,  if 
not  to  excessive  wealth,  yet  to  a  situation  of  comfort  and  inde- 
pendence. 

It  is  another  advantage  of  the  domestic  system  of  manufac- 
ture, and  an  advantage  which  is  obviously  not  confined  to  the 
individuals  who  are  engaged  in  it,  but  which,  as  well  as  other 
parts  of  this  system,  extends  its  benefits  to  the  landholder,  that 
any  sudden  stoppage  of  a  foreign  market,  any  failure  of  a 
great  house,  or  any  other  of  those  adverse  shocks  to  which  our 
foreign  trade  especially  is  liable,  in  its  present  extended  state, 
has  not  the  effect  of  throwing  a  great  number  of  workmen  out 
of  employ  as  it  often  does,  when  the  stroke  falls  on  the  capi- 
tal of  a  single  individual.  In  the  domestic  system  the  loss  is 
spread  over  large  superficies;  it  affects  the  whole  body  of  the 
manufacturers ;  and  though  each  little  master  be  a  sufferer,  yet 
few,  if  any,  feel  the  blow  so  severely  as  to  be  altogether  ruined. 
Moreover,  it  appears  in  evidence  that,  in  such  cases  as  these, 
they  seldom  turn  off  any  of  their  standing  set  of  journeymen, 
but  keep  them  at  work  in  hopes  of  better  times. 

Happily,  the  merchant  no  less  than  the  domestic  manufac- 
turer finds  his  interest  and  convenience  promoted  by  the  domes- 
tic system.  While  it  continues  he  is  able  to  carry  on  his  trade 
with  far  less  capital  than  if  he  were  to  be  the  manufacturer  of 
his  own  cloth.  Large  sums  must  be  irrevocably  invested  in 


20  BUSINESS  ORGANIZATION 

extensive  buildings  and  costly  machinery ;  and,  which  is  perhaps 
a  consideration  of  still  more  force,  he  must  submit  to  the  con- 
stant trouble  and  solicitude  of  watching  over  a  numerous  body 
of  workmen.  He  might  then  often  incur  the  expense  of  manu- 
facturing articles  which,  from  some  disappointment  in  the  mar- 
ket, must  either  be  kept  on  hand  or  be  sold  at  a  loss.  As  it  is 
he  can  agree  with  his  customer,  at  home  or  abroad,  for  any 
quantity  of  goods;  and,  whether  on  a  long-expected  or  a  sud- 
den demand,  he  can  repair  at  once  to  the  market,  and  most  prob- 
ably purchase  to  the  precise  extent  of  his  known  wants;  or,  if 
the  market  happens  not  to  furnish  what  he  wishes  to  purchase, 
he  can  give  out  his  sample  and  have  his  order  executed  imme- 
diately. .  .  . 

It  would  not  be  difficult  to  prove  that  the  factories,  to  a  cer- 
tain extent  at  least,  and  in  the  present  day,  seem  absolutely 
necessary  to  the  well-being  of  the  domestic  system,  supplying 
those  very  particulars  wherein  the  domestic  system  must  be  ac- 
knowledged to  be  inherently  defective ;  for  it  is  obvious  that  the 
little  master  manufacturers  cannot  afford,  like  the  man  who  pos- 
sesses considerable  capital,  to  try  the  experiments  which  are 
requisite,  and  incur  the  risks,  and  even  losses,  which  almost 
always  occur  in  inventing  and  perfecting  new  articles  of  manu- 
facture, or  in  carrying  to  a  state  of  greater  perfection  articles 
already  established.  He  cannot  learn  by  personal  inspection 
the  wants  and  habits,  the  arts,  manufactures,  and  improvements 
of  foreign  countries;  diligence,  economy,  and  prudence  are  the 
requisites  of  his  character,  not  invention,  taste,  and  enterprise ; 
nor  would  he  be  warranted  in  hazarding  the  loss  of  any  part 
of  his  small  capital:  he  walks  in  a  sure  road  as  long  as 
he  treads  in  the  beaten  track;  but  he  must  not  deviate  into  the 
paths  of  speculation.  The  owner  of  a  factory,  on  the  contrary, 
being  commonly  possessed  of  a  large  capital,  and  having  all 
his  workmen  employed  under  his  own  immediate  superintendence, 
may  make  experiments,  hazard  speculation,  invent  shorter  or 
better  modes  of  performing  old  processes,  may  introduce  new 
articles,  and  improve  and  perfect  old  ones,  thus  giving  the 


DEVELOPMENT  OF  ORGANIZATION  21 

range  to  his  taste  and  fancy,  and  thereby  alone,  enabling  our 
manufacturers  to  stand  the  competition  with  their  commercial 
rivals  in  other  countries.  Meanwhile,  as  is  well  worthy  of  re- 
mark, many  of  these  new  fabrics  and  inventions,  when  their  suc- 
cess is  once  established,  become  general  among  the  whole  body 
of  manufacturers;  the  domestic  manufacturers  themselves  thus 
benefiting  in  the  end  from  those  very  factories  which  had  at 
first  been  the  objects  of  their  jealousy.  The  history  of  almost 
all  our  other  manufactures  in  which  great  improvements  have 
been  made  of  late  years,  in  some  cases  at  an  immense  expense, 
and  after  numbers  of  unsuccessful  experiments,  strikingly  illus^ 
trate  and  enforce  the  above  remarks.  It  is  besides  an  acknowl- 
edged fact  that  the  owners  of  factories  are  often  among  the 
most  extensive  purchasers  at  the  halls,  where  they  buy  from  the 
domestic  clothier  the  established  articles  of  manufacture,  or  are 
able  at  once  to  answer  a  great  and  sudden  order ;  while  at  home, 
and  under  their  own  superintendence,  they  make  their  fancy 
goods,  and  any  articles  of  a  newer,  or  more  costly,  or  more 
delicate  quality,  to  which  they  are  enabled  by  the  domestic  sys- 
tem to  apply  a  much  larger  proportion  of  their  capital.  Thus 
the  two  systems,  instead  of  rivaling,  are  mutual  aids  to  each 
other,  each  supplying  the  other's  defects  and  promoting  the 
other's  prosperity. 

This  extract  is  interesting  in  showing  how  clearly  the 
committee  saw  the  general  principles  of  business  in  their 
application  to  commerce  and  trade;  but  how  little  were 
they  able  to  foresee  the  effects  that  were  about  to  be  pro- 
duced in  the  field  of  industry  by  the  adoption  of  the 
joint-stock  method  of  financing  enterprises,  and  the  ap- 
plication of  steam  power,  and  the  factory  method  of 
handling  labor  in  manufacturing  processes. 

The  dates  marking  the  changes  during  the  last  part 
of  the  second  transitional  period  and  the  important  in- 
fluences which  brought  about  the  disintegration  of  the 


22  BUSINESS  ORGANIZATION 

domestic  system  may  be  summed  up  as  follows  for  the 
textile  industries.     Other  industries  soon  followed. 
^  (1)   Before  1770,  early  experiments  with  inventions. 

(2)  1770-1790,  development  of  great  mechanical  in- 
ventions. 

(3)  1790-1830,  application  of  steam  power. 

(4)  After  1830,  development  of  transport  facilities 
and  growth  of  the  market.) 


CHAPTER  II 

DEVELOPMENT  OF  ORGANIZATION  (Continued) 

10.  Factory  system. — This  is  the  system  under  which 
the  modern  industrial  world  moves.  It  is  hardly  saying 
too  much  to  credit  it  with  giving  color  to  modern 
civilization.  When  we  speak  of  our  times  as  being  the 
industrial  age,  or  say  that  our  religious,  political  and 
social  institutions  are  dominated  by  the  commercial 
spirit,  we  have  reference  to  the  conditions  and  influences 
that  have  been  brought  about  under  the  "factory  sys- 
tem." 

The  changes  that  began  to  take  place  under  the  do- 
mestic system  during  the  latter  part  of  the  Eighteenth 
Century  were  carried  on  during  the  Nineteenth  Century. 
The  substitution  of  steam  power  for  man  power  in  the 
production  of  goods  was  equivalent  to  an  increase  of 
productive  efficiency  that  would  have  been  brought 
about  by  increasing  the  population  several  thousand 
times.  So  great  was  the  output  that  the  consuming 
capacity  of  the  population  has  not  yet  been  able  to  over- 
take the  productive  capacity  of  the  people.  For  this 
reason,  each  of  the  great  manufacturing  nations  is  striv- 
ing to  protect  its  home  market  and  to  push  its  surplus 
into  those  countries  where  modern  industrial  organiza- 
tion has  not  yet  penetrated.  That  is,  the  problem  of 
modern  business  organization  is  to  maintain  and  win 
new  markets  for  its  product.  Nations  were  able  during 
the  period  of  the  domestic  system  to  win  new  markets 
by  conquest  and  colonization.  They  held  these  markets 


24  BUSINESS  ORGANIZATION 

by  a  policy  of  colonial  administration  which  compelled 
the  colonies  to  consume  and  to  export  only  those  goods 
that  permitted  the  "home  country"  to  dispose  of  its  sur- 
plus stock  most  advantageously.  England's  attempt 
to  enforce  this  policy  in  America  brought  about  the  War 
of  Independence,  and  the  influence  of  its  outcome 
brought  a  change  in  colonial  administration  throughout 
the  world.  Although  much  can  still  be  done  by  a  nation 
in  advancing  its  foreign  trade,  yet  in  its  last  analysis 
the  success  of  the  business  man  must  depend  upon  his 
resourcefulness  in  producing  a  cheaper  and  a  better 
article  than  his  competitor. 

11.  Cooperation  and  centralization. — The  first  great 
advance  in  the  direction  of  cheapening  production  was 
the  invention  of  a  machine  that  would  do  the  work  of 
several  men.  The  next  step  was  the  improvement  of 
these  machines,  and  much  is  still  being  done  in  this  line, 
but  the  technical  efficiency  of  a  machine  may  be  counter- 
balanced by  many  other  considerations.  The  machine 
may  be  situated  at  so  great  a  distance  from  the  source  of 
power  that  the  cost  of  conveying  the  fuel  or  other 
medium  may  be  greater  than  the  sum  saved  by  using 
mechanical  contrivances.  So  business  men  saw  the  ad- 
vantage of  moving  the  machine  near  to  the  coal  fields 
and  water  falls.  And  then  too,  they  put  the  machines 
under  one  roof  instead  of  having  them  scattered  about 
in  the  homes  of  the  working  men.  This  brought  the 
laborers  under  one  roof.  The  accumulation  of  a  large 
amount  of  capital  and  the  assembling  of  a  numerous 
body  of  workers  under  the  direction  of  a  central  man- 
agement constitutes  the  essential  part  of  the  reorganiza- 
tion which  business  underwent  in  shifting  from  one  sys- 
tem to  another.  These  form  the  foundation  upon  which 
the  modern  industrial  organization  was  to  rear  itself. 


DEVELOPMENT  OF  ORGANIZATION  25 

The  use  of  machinery  was  accompanied  by  a  greater  di- 
vision of  labor  and  hence,  greater  cooperation.  The 
business  unit  considered  as  a  combination  of  capital  and 
labor  has  increased  in  size,  and  the  two  components  have 
assumed  such  entirely  new  relations  to  each  other  that 
many  of  the  most  pressing  problems  of  to-day  depend 
for  their  solution  upon  a  method  which  will  make  them 
cooperate  more  effectively  and  harmoniously. 

12.  Effect  upon  the  laborer's  status. — In  order  that 
this  relation  may  be  seen  clearly  by  the  modern  employer 
of  labor,  the  present  laborer's  position  may  be  compared 
with  the  earlier  handicrafts-man.  Before  the  introduc- 
tion of  steam  power,  the  workman  owned  his  own  lathe, 
or  hand  loom  and  so  on,  he  applied  his  own  muscular 
force,  and  he  guided  and  directed  the  implements  or 
tools  according  to  his  skill  and  sentiments.  By  a  series 
of  economic  changes  he  lost  possession  of  the  tools  but 
still  furnished  the  skill  and  muscle  necessary  in  the  pro- 
duction of  goods.  The  next  step  in  the  divorcement  of 
the  laborer  from  his  work  was  to  supply  an  independent 
source  of  motive  power  which  removed  the  tool  from  the 
direct  guidance  of  the  individual  and  made  him  a  "ma- 
chine tender"  rather  than  a  craftsman.  This  is  an  im- 
portant step,  for  the  relation  of  the  laborer  to  the  work 
is  changed  from  a  direct  to  an  indirect  relation.  He  still 
cooperates  but  neither  the  skill  of  his  hands  nor  a  feeling 
of  proprietorship  in  the  machine  or  the  product  is  left 
to  give  him  a  personal  interest  in  the  outcome. 

With  the  shifting  of  the  machine  from  the  home  to 
the  factory  there  was  a  still  further  break  in  the  interest 
of  the  laborer  in  his  work.  As  the  business  unit  grew  in 
size,  the  laborer  felt  his  growing  insignificance.  Not 
only  was  he  separated  from  any  direct  interest  in  the 
machine,  but  the  increasing  of  the  productive  process 


26  BUSINESS  ORGANIZATION 

was  putting  him  farther  and  farther  away  from  any 
contact  with  the  men  who  were  directing  the  business 
policy  of  the  concern. 

As  the  early  handicraftsman  was  forced  from  the 
market  by  the  increase  and  growing  complexity  of  the 
demand  for  goods  and  grew  suspicious  and  rebelled 
against  the  middleman  who  furnished  the  capital  and 
assumed  the  risks  of  marketing  the  products  of  his 
labor,  so  the  artisan  to-day  is  forced  from  a  direct  con- 
nection in  production.  Other  men  furnish  the  capital, 
direct  the  business  policy  and  manage  the  processes  of 
production.  The  laborer  feels  his  dependence  and 
looks  upon  his  cooperator  capitalist  with  suspicion  and 
distrust.  To  meet  the  power  which  capital  exerts  in 
the  business,  the  laborers  have  combined  into  "trade 
unions,"  and  after  a  long  struggle  they  have  estab- 
lished their  right  to  speak  as  a  body  in  the  interests  of 
the  individual  members.  They  have  made  great  prog- 
ress along  this  line  by  substituting  the  method  of  "col- 
lective bargaining"  for  the  old  method  in  which  the  in- 
dividual laborer  stood  alone  in  bargaining  for  his  wage 
with  the  employer.  At  present  the  unions  support  the 
claims  and  demands  of  their  members. 

To  restore  some  of  the  advantages  which  existed  un- 
der the  simpler  forms  of  industrial  organization,  many 
of  the  large  establishments  of  to-day  are  adopting 
methods  of  payment  such  as  profit  sharing,  as  well  as 
plans  for  the  better  housing  of  their  employes,  and  vari- 
ous devices  for  improving  their  condition  while  at  work 
which  is  termed  "welfare  work."  The  object  is  mainly 
to  regain  that  personal  touch  between  employer  and  em- 
ploye which  was  lost  in  the  complex  business  organiza- 
tion of  to-day.  These  will  be  treated  of  later  as  a  part 
of  the  business  policy  of  an  enterprise.  It  is  mentioned 


DEVELOPMENT  OF  ORGANIZATION  27 

here  simply  to  show  how  these  modern  problems  of  busi- 
ness are  connected  with  the  larger  industrial  develop- 
ment. 

The  increase  of  production  due  to  a  better  organiza- 
tion of  the  essentials  contributed  by  labor  was  accom- 
panied by  a  continual  improvement  in  the  character  of 
the  machine. 

The  economic  advantage  of  the  early  machines  consisted 
chiefly  in  the  economy  of  working  in  combined  action  a  number 
of  similar  tools  by  the  agency  of  a  single  motor. 

The  more  highly  evolved  modern  machinery  generally  repre- 
sents an  orderly  sequence  of  processes  by  which  mechanical 
unity  is  given  to  labor  once  performed  by  a  number  of  separate 
individuals  or  groups  of  individuals  with  different  sorts  of  tools. 
But  the  economy  of  the  earlier  machines  was  generally  of  a 
different  character.  It  consisted,  for  the  most  part,  not  in  the 
harmonious  relation  of  a  number  of  different  processes,  but 
rather  in  a  multiplication  of  the  same  process  raised  sometimes 
to  a  greater  size  and  more  speed  by  mechanical  contrivances. 
So  the  chief  economic  value  of  the  earlier  machinery  applied 
to  spinning  consisted  in  the  fact  that  it  enabled  each  spinner 
to  work  an  increased  number  of  spindles  and  performing  with 
each  the  same  simple  process  that  he  formerly  performed  with 
one.  In  other  cases,  however,  the  element  of  multiplication  was 
not  present,  and  the  prime  economy  of  the  machine  consisted  in 
superior  skill,  regularity,  pace  or  economy  of  power  obtained 
by  substituting  mechanical  direction  of  the  tool  for  close  and 
constant  human  direction.  In  modern  machinery  the  sewing 
machine  illustrates  the  latter,  as  the  knife-cleaning  machine 
illustrates  the  former.1 

13.  Producer  as  a  business  man. — The  chief  direc- 
tions in  which  the  business  manager  applied  his  energies 
in  order  to  reduce  the  costs  of  production  and  to  increase 

i  Hobson,  "  The  Evolution  of  Modern  Capitalism,"  page  46. 


28  BUSINESS  ORGANIZATION 

his  output  was  as  mentioned  above.  But  non-human 
power  and  the  machine  called  for  large  outlays  of  capi- 
tal. This  was  supplied  by  the  constantly  increasing  sur- 
plus due  to  more  efficient  production  under  the  factory 
system.  The  capital,  however,  was  scattered  and  men 
were  not  as  yet  experienced  in  the  ways  whereby  these 
capitals  in  various  forms  and  in  sundry  places  might  be 
brought  together,  thus  affording  a  large  accumulation 
under  a  single  management  to  be  used  in  some  one  indus- 
try. This  was  the  problem  set  for  the  business  men  of 
the  last  century.  In  1800  the  principal  form  of  a  busi- 
ness enterprise  whereby  the  capital  of  more  than  one  man 
might  be  used  in  the  promotion  of  industry  was  the  part- 
nership. This  form  was  fitted  to  the  conditions  of 
earlier  systems  although  its  limitations  were  manifest 
when  the  great  commercial  and  trading  companies  were 
organized  in  the  seventeenth  and  eighteenth  centuries. 
Many  men  were  willing  to  invest  a  part  of  their  capital, 
provided  by  so  doing  they  did  not  endanger  the  re- 
mainder of  their  possessions  through  the  risks  of  the 
venture  or  the  peculations  of  the  partners.  The  part- 
nership form  of  organization  did  not  permit  such  men 
to  dispose  of  their  capital,  since  the  essential  principle 
of  the  partnership  is  that  each  member  is  liable  to  the  ex- 
tent of  his  whole  possessions,  and  is  bound  by  the  actions 
of  his  partners. 

The  increasing  wealth  of  both  nations  and  individuals 
forced  the  business  man  into  a  consideration  of  means 
whereby  it  might  be  used  as  capital  in  further  produc- 
tion. He  saw  that  increased  production  and  cheap- 
ened costs  which  depended  simply  upon  new  inventions 
and  the  application  of  a  non-human  power  would  soon 
reach  their  limits  if  there  were  not  combined  with  these 
the  advantage  of  "large  scale  production."  Under  this 


DEVELOPMENT  OF  ORGANIZATION  29 

method  the  business  man  utilizes  his  space  and  time  to 
the  fullest  advantage.  The  more  goods  he  can  turn  out 
upon  a  given  space  and  in  a  given  time,  the  less  heavily 
do  the  ground  rent,  the  interest  charges,  and  so  on,  fall 
upon  each  unit  of  goods.  He  saw  also  that  the  same 
policy  applied  to  his  wage  costs.  If  a  laborer  could  at- 
tend four  machines  with  the  same  effort  that  he  could 
watch  two  machines,  then  the  costs  per  unit  of  output 
would  be  lessened  very  materially  by  providing  more 
machines  and  increasing  the  output.  But  a  business 
policy  of  this  kind  called  for  the  accumulation  of  larger 
capitals.  It  could  not  be  supplied  by  one  individual 
nor  by  the  joint-stock  of  a  few  individuals  which  the 
partnership  form  of  organization  permitted. 

It  was  evidently  time  to  extend  the  operation  of  the 
joint-stock  principle  as  found  under  the  partnership  by 
removing  the  restrictions  of  unlimited  liability  imposed 
upon  business  associations  of  this  kind.  Accordingly 
joint-stock  companies  were  permitted  to  organize  under 
the  law.  Each  member  was  limited  in  his  liabilities  to 
the  amount  of  his  capital  investment.  In  England, 
these  companies  were  known  as  "limited  companies," 
while  in  the  United  States  they  are  spoken  of  as  cor- 
porations. 

Although  according  to  the  recent  researches  of  Deloume  and 
Weber  the  commercial  corporation  probably  existed  in  the  later 
centuries  of  the  Roman  Republic,  in  its  modern  shape  it  dates 
from  the  early  medieval  Italian  cities.  The  earliest  form  was 
that  of  a  so-called  "bank,"  individuals  associating  their  capital 
to  form  a  joint-stock,  loaning  it  to  the  government  on  a  pledge 
of  certain  revenues,  and  participating  in  the  profits  according 
to  their  holdings.  Thus  the  beginnings  of  public  credit  and  of 
corporate  enterprise  are  found  intimately  associated.  The  next 
important  development  of  the  joint-stock  principle  was  in  the 


30  BUSINESS  ORGANIZATION 

trading  companies  of  the  sixteenth  century,  which  were  at  first 
mere  temporary  associations  for  the  purpose  of  a  single  voyage, 
but  which  gradually  assumed  a  more  permanent  form.  It  was 
not,  however,  until  the  predominance  of  industrial  over  commer- 
cial capital  in  the  nineteenth  century  that  we  find  the  immense 
expansion  of  corporate  enterprise  which  marks  modern  life.1 

To  the  above  economic  advantages  may  be  added  that 
of  perpetual  life.  Unlike  the  individual  firm  or  the 
partnership  which  must  be  changed  with  the  death  of  a 
member,  the  corporation  never  dies  until  the  business  is 
liquidated.  "The  shareholder  may  disappear  but  not 
the  shares."  This  permanency  of  life  enables  it  to 
plan  for  the  future.  The  "to-morrow  departments"  of 
large  industries  of  the  present  can  plan  with  the  as- 
surance that  there  will  be  a  business  successor  or  in- 
heritor who  will  carry  out  its  plans  with  ability,  or  if 
needs  be,  who  can  wisely  adjust  the  policy  to  altered 
conditions. 

14.  Trusts,  or  unions  of  corporations. — During  the 
last  half  of  the  Nineteenth  Century  the  advantages  of 
united  capital  became  so  apparent  that  large  scale  pro- 
duction developed  into  gigantic  scale  production.  In 
order  to  meet  the  demands  for  immense  accumulations 
of  capital,  it  became  expedient  to*  form  corporations 
whose  membership  was  made  up  of  smaller  corporations. 
Although  there  were  other  motives  than  those  of  econ- 
omizing production  through  increasing  the  size  of  the 
business  unit,  yet  this  is  still  a  strong  argument  in  favor 
of  the  modern  form  of  organization  known  as  the  trust. 
So  important  has  the  financiering  of  modern  corpora- 
tions become  that  it  is  separated  from  the  productive 
end  of  the  business  and  given  a  distinctive  department. 

iSeligman,  "Principles  of  Economics,"  page  96. 


DEVELOPMENT  OF  ORGANIZATION 


31 


The  raising  of  capital  by  the  marketing  of  securities 
is  treated  in  the  volumes  of  this  series  entitled  CORPORA- 
TION FINANCE  and  INVESTMENT  AND  SPECULATION. 

In  no  country  has  the  increase  in  capital  been  so  rapid 
and  vast  as  in  the  United  States.  Hence  it  is  here  that 
we  should  expect  to  find  the  greatest  tendency  toward 
the  organization  of  industry  in  large  establishments. 
Beginning  in  1812,  we  find  some  concentration  on  a 
large  scale,  but  it  was  not  until  1850  that  the  machine 
supplanted  hand  work,  and  not  until  1865  that  large 
scale  production  became  the  prevailing  type  of  industry. 

The  following  diagrams  from  the  Reports  of  the 
Twelfth  United  States  Census  Statistical  Atlas  will 
give  some  idea  of  this  vast  capital  increase  during  the 
second  half  of  the  19th  century  and  also  a  comparison 
of  the  cost  and  value  of  products.  The  next  table  of  a 
few  important  industrial  companies  shows  the  growth  of 
combination. 


1000 


1.  CAPITAL  INVESTED  AT  EACH  CENSUS:  1850  TO  T900, 

HUNDREDS  OF  MILLIONS  OF  DOLLARS 
9  »  40  GO  60  TO 


2,  VALUE  OF  PRODUCTS  AT  EACrf  CENSUS:  1850  TO  1900. 

HUNDREDS  OF  MILLIONS  OF  DOLLARS 


( 

1000 

1 

i 

3 

1 

I 

8 

1 

I 

1 

e 

0 

7 

2 

I 

i 

N 

108 

120 

n 

1890 

1880 
1870 

•• 

EBB! 

mm 

~ 

«= 

I860 

mm 

BOB 

I860 

mm 

=3 

mm 

COS 

OF 

rtATEf 

IALS 

1 

VALU 

E  LE 

;s  co 

ST  OF 

MAT 

:RIAU 

> 

BUSINESS  ORGANIZATION 


Name 


Capitalization, 
When  Outstanding 

founded  or         Stocksand 
reorganized. 


1.  United  States  Steel  Corporation  ............  1901 

2.  American  Telegraph  &  Telephone  Co  ........  1885 

3.  American  Tobacco  Co.     (Old  Company)  ....  1904 

4.  International   Mercantile    Marine  ...........  1902 

5.  American  Smelting  and  Refining  Co  ........  1899 

6.  Amalgamated    Copper    Co  ..................  1899 

7.  International  Harvester  Co  .................  1902 

8.  Pullman    Co  ...............................  1899 

9.  Central  Leather   Co  ........................  1905 

10.  American  Agricultural  Chemical  Co  ........  1912 

11.  United  States  Rubber  Co  ..................  1892 

12.  Mackay    Companies...  .....................  1903 

13.  American  Sugar  Refining  Co  ...............  1891 

14.  Corn   Products  Refining  Co  ................  1906 

15.  American  Can  Co  ..........................  1901 

16.  Pittsburgh  Coal  Co  ........................  1899 

IT.  General    Electric    Co  .......................  1892 

18.  Colorado  Fuel  &  Iron  Co  ..................  1912 

19.  Lackawanna  Steel  Co  ......................  1902 

20.  Wectinghouse  Electric  &  Mfg.  Co  ..........  1872 

21.  Republic  Iron  £  Steel  Co  ..................  1899 

22.  American  Car  &  Foundry  Co  ...............  1899 

23.  American  Woolen   Co  ......................  1899 

24.  International   Paper  Co  ....................  1898 

25.  National    Biscuit   Co  .......................  1898 

26.  American    Locomotive    Co  ..................  1901 

27.  Deere  &  Co  ...............................  1911 


$1,489,084,977 

419,408,710 

223,168,250 

179,413,563 

162,000,000 

153,887,900 

140,000,000 

127,248,418 

112,546,231 

111,087,000 

94,000,000 

91,380,400 

90,000,000 

88,653,146 

82,466,600 

81,405,120 

80,141,200 

77,424,323 

76,808,000 

71,403,937 

60,242,787 

60,000,000 

60,000,000 

56,322,500 

54,040,500 

52,305,000 

51,426,300 


15.  Division  of  labor.  —  The  mass  production  which 
was  possible  only  with  the  advent  of  the  machine  has 
been  furthered  by  the  specialization  of  labor.  Mass 
production  is  thus  correlated  to  labor  as  closely  as  it  is 
to  capital.  From  the  point  of  view  of  industry  this 
division  of  labor  has  manifested  itself  in  four  direc- 
tions. 

First,  there  was  the  differentiation  of  the  process  of 
making  a  living  between  man  and  woman.  The  di- 
vision of  society  into  social  classes  is  a  result  of  the 


DEVELOPMENT  OF  ORGANIZATION  33 

working  of  this  principle.  The  military  class,  the 
priesthood,  and  the  industrial  classes  are  examples  of 
these  social  groups. 

Second,  it  took  ages  for  this  elementary  division  of 
labor  to  take  place,  but  the  efficiency  gained  by  society 
was  so  great  that  the  same  force  has  been  operative 
within  the  various  classes  themselves.  The  great  in- 
dustrial  class  is  the  only  one  in  which  we  are  at  present 
interested,  and  it  is  here  that  we  find  the  best  examples 
of  the  division  of  labor,  especially  among  the  textile  in- 
dustries. It  was  in  this  field  that  the  earliest  of  the  in- 
ventions was  applied.  This  start  in  industrial  develop- 
ment has  been  maintained  and  the  operation  of  the  great 
industrial  force  can  be  clearly  discerned.  For  instance, 
certain  mills  manufacture  yarns;  others  do  only  the 
weaving;  and  still  others  dye  and  prepare  the  cloth  for 
the  trade. 

Third,  we  find  within  each  of  these  branch  indus- 
tries a  still  further  refinement  of  this  specialization. 
Each  business  has  its  technical  processes  divided  into 
separate  classes.  This  means  that  certain  groups  of 
workmen  apply  themselves  to  one  machine  process  while 
other  groups  are  likewise  limited,  each  to  some  one  kind 
of  labor.  Thus  the  modern  factory  discloses  perhaps 
hundreds  of  separate  processes  all  working  to  turn  out 
a  completed  article  which  in  former  times  was  made  en- 
tirely by  one  man.  To  make  a  shoe  in  some  factories 
requires  nearly  two  hundred  operations  each  conducted 
by  a  separate  class  of  operators.  In  the  manufacture 
of  a  high  grade  watch  there  are  more  than  one  thousand 
kinds  of  machines  each  with  its  different  set  of  laborers. 
The  advantage  of  this  kind  of  specialization  is  obvious 
but  the  extent  to  which  it  is  carried  in  the  manufacture 
of  the  commonest  articles  is  often  overlooked.  For  ex- 

II— 3 


34  BUSINESS  ORGANIZATION 

ample,  the  horse-rake  has  three  hundred  parts,  the  mower 
is  made  up  of  six  hundred,  and  the  binder  contains 
3,800  parts.  If  we  compare  this  with  the  old  reaping 
tool  of  two  pieces — the  handle  and  the  blade — the  de- 
velopment of  the  machine  and  the  consequent  division 
of  labor  are  very  evident.  The  close  connection  be- 
tween specialized  labor  and  increased  output  is  also  il- 
lustrated by  the  manufacture  of  reapers.  In  one  year 
the  McCormick  Company  turned  out  56,000,000  cast- 
ings. This  company  devotes  one  department  solely  to 
the  making  of  chain-links,  and  the  output  runs  to  nearly 
sixty  million  a  year.  Another  department  makes  more 
than  400,000  linch  pins  per  day. 

This  great  output  can  only  be  accomplished  because 
of  the  specialization  of  labor  and  the  use  of  special  ma- 
chinery. The  laborer,  through  greater  familiarity  with 
one  process,  increases  his  dexterity  while  the  machine 
supplies  a  tireless  energy  and  precision  which  man  alone 
cannot  give  to  it.  A  boring  instrument  in  this  same  fac- 
tory can  make  five  holes  in  a  casting  in  six  minutes.  It 
took  four  hours  to  do  the  same  work  by  hand.  In  the 
paint  shop  one  unskilled  workman  can  paint  four  hun- 
dred reaper  frames  a  day  by  dipping  them  into  a  great 
tank  of  paint. 

The  saving  in  the  cost  of  production  is  well  illustrated 
in  the  same  connection.  In  1845  the  inventor  of  the 
reaper  paid  four  and  a  half  cents  for  one  bolt.  These 
were  made  by  hand.  To-day  the  company  makes  bolts 
at  the  rate  of  fifty  for  one  cent.  It  was  the  same  with 
"guard-fingers."  Only  fifty  years  ago  these  cost  24 
cents  each.  At  present,  by  machine  and  the  assist- 
ance of  one  man,  1,300  guard-fingers  can  be  turned 
out  in  one  working  day  at  a  labor  cost  of  six  for  1  cent. 
Perhaps  the  carpenter  shop  offers  the  best  illustration 


DEVELOPMENT  OF  ORGANIZATION  35 

of  the  saving  which  mass  production  is  capable  of 
giving  as  a  result  of  the  substitution  of  hand  methods 
by  machinery,  and  the  improvement  of  technique 
through  division  of  labor.  Here,  a  machine  that  cost 
$2,500  performs  the  single  function  of  shaping  poles. 
It  saves  only  one  penny  a  pole  but  this  means  $3,000  a 
year  on  the  300,000  poles  which  it  turns  out. 

16.  Territorial  division  of  labor. — There  is  also  a 
fourth  division  of  labor  which  is  characterized  by  the 
location  of  the  industry.  Labor  is  applied  to  industry 
to  greater  advantage  in  some  localities  than  in  others. 
In  large  cities  like  New  York  and  Chicago,  the  various 
lines  of  wholesale  business  gather  in  districts  by  them- 
selves. This  fact  is  so  well  known  by  New  York  work- 
ingmen  that  they  can  tell  with  a  fair  degree  of  accuracy 
the  prevailing  wages,  the  number  of  hours  of  labor  per 
day,  the  business  habits  of  opening  early  in  the  morning 
or  of  giving  a  half  holiday  on  Saturday  if  they  know 
within  what  section  the  business  is  located.  For  in- 
stance, a  book-keeper  who  wished  to  stop  work  early  in 
the  afternoon  would  feel  that  his  chance  for  getting 
such  a  position  would  be  very  poor  if  he  applied  in  the 
district  bounded  by  Fourth  Street  on  the  south  and 
Twenty -third  Street  on  the  north;  Fifth  Avenue  on  the 
west  and  Second  Avenue  on  the  east. 

The  reason  why  industries  are  gathered  in  certain 
localities  in  cities,  or  on  a  wider  scale  of  the  nation  is 
because  some  places  or  territories  are  better  fitted  to 
some  industries  than  others.  Some  of  the  peculiar 
characteristics  pertaining  to  the  territorial  division  of 
labor  are  as  follows : 

1.  Natural  characteristics: 

(a)    Proximity  to  coal,  water  power,  or  raw  mate- 
rial. 


36  BUSINESS  ORGANIZATION 

(b)    Favorable  climate. 
2.  Business  characteristics: 

(a)  Nearness  to  markets. 

(b)  Cheap  labor  supply. 

(c)  Abundant  capital  supply. 

(d)  Good  credit  facilities. 

17.  Advantages  and  limitations. — That  there  have 
been  many  advantages  which  the  business  world  has 
gained  through  its  increased  wealth  due  to  the  division 
of  labor  cannot  be  gainsaid,  but  the  business  man  would 
go  far  astray  in  many  respects  if  he  did  not  recognize 
the  limitation  of  the  application  of  this  principle. 
Many  of  the  remedies  which  advanced  thinkers  are  try- 
ing to  apply  to  the  industrial  organization  of  to-day 
have  to  do  with  the  evils  caused  by  too  great  specializa- 
tion and  production  on  a  large  scale.  Diversification 
must  be  supplemented  by  cooperation.  It  is  in  the  third 
division  of  the  mechanical  division  of  labor  that  the 
business  man  is  treated  from  the  point  of  view  of  the 
.  business  enterprise.  If  machine  work  and  labor  spe- 
cialization simply  bring  to  the  laborer  greater  intensity 
of  work,  then  the  basis  for  the  prosperity  of  the  em- 
ployer is  unsound.  The  laborers  of  a  country  are  also 
the  greatest  consumers.  Increased  output  by  the  in- 
dustries of  a  nation  without  a  corresponding  growth 
in  the  capacity  to  enjoy,  and  an  increase  in  the  purchas- 
1  ing  power  so  that  these  goods  may  be  procured  on  the 
part  of  the  labor  force,  will  avail  the  individual  pro- 
ducer little  in  the  face  of  restricted  or  stunted  markets 
even  with  cheapened  costs  of  production,  Therefore 
the  principle  of  cooperation  must  be  adopted  as  a  com- 
plement to  the  division  of  labor.  Herein  lies  the  great 
role  of  the  employer  of  labor.  He  must  see  not  only 
the  small  technical  advantages,  but  also  the  advantages 


DEVELOPMENT  OF  ORGANIZATION  37 

which  come  from  a  wider  view  of  the  results  when  the 
whole  process  is  considered.  Organization  in  its 
broader  meaning  is  attention  to  cooperative  as  well  as 
to  technical  efficiency.  First  there  must  be  cooperation 
between  labor  and  capital.  Then  there  must  also  be 
that  technical  combination  of  laborer  with  laborer. 
"Team  work"  tells  as  effectively  in  the  factory  as  on  the 
football  field.  Each  man  plays  his  individual  part,  but 
at  the  critical  moment  the  combined  effort  is  necessary 
if  the  result  is  to  be  of  value.  The  great  steel  foundry 
divides  its  work  into  many  sections  but  all  parts  must 
cooperate  simultaneously  or  the  product  is  spoiled.1 

Thus  we  see  that  the  simple  business  of  early  times 
has  evolved  into  the  complex  form  of  to-day  in  accord- 
ance with  the  same  laws  which  rule  plants,  planets  and 
political  institutions.  The  prevailing  form  of  organi- 
zation of  the  present  is  still  undergoing  changes  and 
will  no  doubt  manifest  many  new  features  as  the  years 
pass  by.  It  seems  that  the  big  business  in  the  form 
of  the  corporation  will  be  of  the  type  to  give  its  name  to 
the  twentieth  century  industrial  organization. 

i  Principles  of  Economics,"  by  E.  R.  A.  Seligman,  page  183. 


CHAPTER  III 

ORGANIZATION  OF  THE  MARKET 

18.  Extension  of  the  market. — Not  only  has  the 
growth  of  capital  forced  changes  in  the  forms  of  the 
productive  system  and  in  the  forms  of  legal  organiza- 
tion, but  it  has  also  emphasized  the  importance  of  the 
nation  as  an  economic  unit.  Commercial  interests  can- 
not follow  state  lines;  and  as  the  national  surplus  in- 
creases, trade  cannot  be  bound  by  national  boundaries. 
The  foreign  market  is  a  necessary  supplement  to  our  in- 
creased productive  capacity.  At  first  it  was  necessary 
to  dispose  only  of  our  surplus  agricultural  products 
abroad,  but  now  that  the  country  is  producing  such 
enormous  quantities  of  manufactured  goods  over  and 
above  our  home  needs,  they  too  must  be  sold  to  foreign 
consumers. 

Speaking  roughly  we  can  say  that  business  may  be 
divided  into  two  phases.  One  phase  consists  of  main- 
taining a  continuous  flow  of  goods  through  the  various 
processes  until  completed.  The  raw  cotton  finds  its 
way  to  the  spinners;  and  the  cloth,  after  leaving  the 
manufacturer's  hands,  is  conveyed  to  the  warehouse, 
from  whence  it  passes  to  the  shops  to  replace  the  ever 
dwindling  stocks.  The  other  phase  is  the  distribution 
of  completed  goods  ready  for  consumption.  The  first 
phase  is  dependent  upon  the  second  and  the  latter  is 
dependent  upon  the  consumer.  It  is  the  strength  of  the 
consumer's  demand  that  draws  on  the  raw  material 
through  the  various  processes  until  it  reaches  the  correct 

38 


ORGANIZATION  OF  THE  MARKET  39 

form  and  the  right  place  at  the  most  appropriate  time. 
It  is  very  necessary,  therefore,  that  the  wishes  or  desires 
of  the  consumer  become  known  to  the  producer  with  as 
little  delay  and  confusion  of  information  as  possible. 
On  the  other  hand,  it  is  quite  as  imperative  that  the 
producer  be  able  to  deliver  his  goods  to  the  consumer 
with  each  of  the  above  attributes  of  form,  time  and  place 
in  their  highest  degree  of  perfection. 

The  means  by  which  the  consumer  expresses  his  de- 
sires and  makes  his  purchases  and  by  which  the  producer 
gathers  the  information  and  delivers  the  commodities, 
is  the  market.  The  simplest  form  of  the  market  is  one 
where  the  consumer  meets  face  to  face  with  the  pro- 
ducer. In  this  case  there  can  be  no  deterioration  in  the 
character  of  the  goods  while  passing  from  one  owner 
to  the  other.  Each  one  is  able  to  form  his  judgment 
in  conformity  with  his  own  observations,  and  insofar  as 
this  one  transaction  is  concerned,  the  producer  has 
placed  his  goods  at  the  most  economical  point  in  space 
and  time.  Presumably,  if  this  were  not  so,  the  place 
and  time  would  be  changed. 

19.  Primary  function  of  a  market. — Under  the  early 
systems  of  industrial  organization  this  primary  method 
of  purchase  and  sale  predominated.  In  Genoa  several 
hundred  years  ago,  the  buyers  and  sellers  of  grain  con- 
gregated around  a  certain  stone  near  the  docks.  For 
many  generations  this  served  as  the  only  market,  but 
later  something  more  systematic — that  is,  a  better  mar- 
ket organization — seemed  desirable.  Accordingly  an 
association  was  formed,  rules  were  adopted,  and  a  build- 
ing was  erected.  This  was  the  beginning  of  the  Genoa 
Grain  Exchange  of  to-day. 

With  all  the  changes  that  it  has  been  necessary  to 
make  in  the  organization  of  the  market,  this  primary 


40  BUSINESS  ORGANIZATION 

function  is    still   the    distinguishing    characteristic   of 
every  market.     The  strong  tendency  to  keep  this  sim- 
ple organization  where  it  is  possible  to  stem  modern  in- 
fluence is  seen  in  the  Antwerp  grain  market.     Here 
there  is  no  trade  organization  other  than  an  Arbitration 
Committee.     It  is  an  open  and  free  market  and  all  the 
transactions  are  for  cash  with  the  delivery  of  the  actual 
grain.     The  grain  trade  is  carried  on  by  local  interests, 
who  meet  at  the  Bourse  every  week  day  from  two 
o'clock  until  three.     At  this  time  the  buyers  and  sellers 
close  the  deals  which  they  have  been  negotiating  during 
the  forenoon.     Wednesdays  and  Thursdays  are  par- 
ticularly busy  days,  and  during  this  time  the  exchange 
room  is  crowded.     All  business  transacted  here  is  of  a 
private  nature.     No  official  record  of  the  prices  is  kept, 
as  there  is  no  organization.     A  merchant  of  Antwerp 
who  buys  a  cargo  of  wheat  in  Argentina  does  not  know 
when  he  will  sell  it,  nor  to  whom,  nor  at  what  price. 
Any  merchant  who  buys  a  bill  of  goods   takes  like 
chances.     But  it  is  just  this  element  of  uncertainty 
which  has  modified  the  organization  of  modern  markets. 
That  Antwerp  stands  unique  among  the  great  grain 
markets  is  largely  due,  no  doubt,  to  her  proximity  to 
other  larger  markets  which  have  been  changed  to  meet 
modern  conditions,  and  so  in  a  measure  Antwerp  is  en- 
abled to  use  the  prices  of  other  markets  as  a  basis  for  her 
own  operations.     If  this  were  not  true  it  would  be  im- 
possible for  each  merchant  in  Antwerp  to  maintain  con- 
nections with  all  parts  of  the  world,  in  order  to  deter- 
mine the  chief  price-making  factors.1 

i  In  Antwerp  the  following  are  of  particular  importance:  Offers  of 
wheat  from  the  Danubian  country  and  from  Argentina,  the  stocks  held 
by  the  millers,  and  the  amount  of  wheat  afloat,  the  movement  of  the  grain 
crops  in  the  United  States  and  in  Canada,  and  the  amount  received  by 
such  large  wheat  consuming  centers  as  London,  Liverpool  and  so  on. 


ORGANIZATION  OF  THE  MARKET  41 

20.  Market  prices  a  resultant  of  world-wide  influ- 
ences.— The  situation  as  it  exists  in  the  wheat  trade  is 
typical  of  all  forms  of  commercial  and  industrial  activ- 
ity.    Each   individual   enterprise   connected   with   the 
wheat   and   flour   industry   has   been  affected  by   the 
greatly  extended  areas  over  which  wheat  is  grown,  by 
the  improved  mechanical  processes,  and  by  the  organiza- 
tion of  labor  and  capital  which  have  reduced  the  cost 
of  production.     Men  of  the  grain  trade  must  watch  the 
world  conditions  in  order  to  determine  the  supply.     On 
the  other  side,  the  consumer  of  wheat  must  keep  in- 
formed as  to  the  demands  of  other  countries.     In  other 
words,  the  price  of  wheat  is  influenced  directly  and  con- 
tinually by  world-wide  influences  on  both  the  supply 
and  demand  side  of  the  market.     No  longer  can  any 
local  market  be  made  up  of  buyers  and  sellers  who  can 
directly  investigate  the  conditions  controlling  the  price 
of  wheat.     The  situation  has  become  too  complex,  and 
with  complexity  and  extension  have  come  uncertainty. 
If  producers  and  consumers  were  to  give  up  their  time 
to  solve  all  the  commercial  riddles  which  modern  organ- 
ization presents,  they  would  have  little  time  left  for  any 
other  business. 

21.  Function  of  the  middleman. — Accordingly  there 
has  risen  within  the  industrial  system  a  class  of  men  who 
are  willing  to  devote  their  whole  time  to  the  gathering 
of  information  and  to  analysis  of  the  conditions  which  it 
reflects.     These  men  are  willing  to  support  their  judg- 
ments of  the  outcome  with  their  money.     They  say  to 
the  producer,  "We  are  willing  to  buy  your  goods  to- 
day at  the  prevailing  price  for  the  privilege  of  selling 
it  in  the  future  at  the  price  which  we  believe  will  then 
exist."     In  other  words  they  assume  the  commercial  risk 
for  the  privilege  of  making  any  profit  that  may  arise 


42  BUSINESS  ORGANIZATION 

from  a  change  of  price  in  harmony  with  their  predic- 
tions. The  amount  of  these  risks  varies  with  the  trade. 
Some  trades  support  a  separate  class  of  risk-takers  called 
speculators,  others  have  a  class  of  middlemen  who  do 
not  assume  the  entire  risk,  but  owing  to  their  training 
and  experience  are  in  a  position  to  aid  both  producer 
and  consumer  in  effecting  exchanges  of  commodities. 
These  men  are  variously  spoken  of  as  commission  men, 
factors,  jobbers,  brokers  and  so  on. 

22.  Market  for  raw  materials. — The  specialization 
that  has  followed  the  development  of  industry  has  made 
its  appearance  in  the  market  also.  Cotton,  grain,  cloth- 
ing, machinery  and  many  lines  of  business  have  each  a 
special  market.  The  organizations  of  such  markets 
vary  in  accordance  with  the  means  by  which  the  function 
of  buying  and  selling  can  be  carried  on  most  economi- 
cally. The  handling  of  the  raw  materials  differs  from 
the  distribution  of  the  manufactured  product.  This  dis- 
tribution is  based  largely  on  the  relation  of  the  two 
classes  of  commodities  to  the  consumer.  The  great  bulk 
of  the  agricultural  products  is  not  wanted  directly  by 
the  final  user  of  these  commodities.  The  smoker  of  a 
cigar  seldom  thinks  of  the  tobacco  plant  or  the  dry  leaf. 
The  wearer  of  a  calico  dress  gives  no  attention  to  the 
cotton  field  or  the  cotton  bale.  Neither  of  these  con- 
sumers wants  more  than  a  comparatively  small  amount 
of  cigars  or  calico  at  one  time.  Furthermore,  the 
qualities  which  the  buyer  demands  in  these  goods  are 
produced  by  the  manufacturer  and  these  demands  are 
subject  to  sudden  changes.  The  buyers  of  manufac- 
tured articles  seek  to  purchase  their  goods  after  a  per- 
sonal inspection  and  a  series  of  bargainings.  They  do 
not  meet  in  competition  at  a  given  time  and  place. 

Therefore,  the  organization  of  a  market  that  is  to 


ORGANIZATION  OF  THE  MARKET  43 

meet  the  conditions  here  presented  must  be  very  differ- 
ent from  that  in  the  field  of  agricultural  products.  The 
latter  are  distributed  to  the  manufacturer  in  great  quan- 
tities. It  would  be  a  great  economic  loss  if  he  were 
compelled  to  travel  over  a  territory  large  enough  to 
supply  himself  with  the  required  amount  and  quality 
of  raw  cotton,  wheat  or  tobacco.  The  miller  would  lose 
time  and  money  if  he  were  compelled  to  bargain  with 
the  farmer  for  enough  grain  to  keep  a  modern  mill  run- 
ning. For  example,  the  Pillsbury  A  Mill  in  Minneap- 
olis grinds  into  flour  the  output  of  more  than  thirty 
wheat  farms  of  two  hundred  acres  each  in  one  day. 
Such  a  business  would  naturally  find  great  disadvantages 
in  drawing  the  grain  from  the  country  into  a  central 
market.  Another  source  of  demand  for  wheat  comes 
from  those  foreign  nations  who  wish  to  import  grain. 
If  it  were  necessary  for  each  importer  to  look  to  the 
farmer  directly  for  grain,  there  would  be  a  greater 
economic  loss  than  in  the  case  of  the  millers.  Conse- 
quently, we  find  the  grain  drawn  from  all  quarters  of 
the  grain  belt  to  central  points  convenient  for  shipping. 
In  the  case  of  the  great  primary  grain  market  at  Min 
neapolis,  the  demand  of  the  local  mills  forms  the  basis 
for  that  market,  while  the  New  York  market  depends 
upon  the  export  demand  for  its  support.  The  nature 
of  the  commodity,  too,  aids  in  this  method  of  marketing. 
It  can  be  handled  in  bulk  without  injury  under  ordinary 
precautions.  It  can  be  stored  away  for  long  periods 
without  deterioration.  It  lends  itself  readily  to  the  busi- 
ness policy  of  buying  and  selling  in  large  bulk  because  it 
is  easily  graded  into  different  classes  in  accordance  with 
the  demand  for  certain  standard  qualities.  Further- 
more, where  the  demand  is  extensive  enough  it  becomes 
subject  to  the  tendency  of  the  business  men  to  buy  and 


44  BUSINESS  ORGANIZATION 

sell  for  future  delivery.  Hence  the  dominant  feature 
of  all  markets  for  the  distribution  of  agricultural  prod^ 
ucts  like  grain,  cotton,  tobacco  and  produce  is  the  strong 
tendency  toward  speculation.  But  in  each  of  these  spe- 
cial markets  the  business  man  has  turned  over  the  spec- 
ulation business  with  its  profits  and  losses  to  the  specu- 
lator, and  he  has  received  in  return  the  opportunity  to 
insure  himself  against  unforeseen  losses  which  arise  in 
this  direction.  The  result  of  these  many  factors  has 
been  to  create  a  number  of  exclusive  competitive  mar- 
kets provided  with  rules  and  regulations  and  controlled 
by  a  special  class  of  traders. 

23.  Market  for  manufactures. — The  organization 
of  the  market  for  the  distribution  of  manufactured 
wares  is  the  outcome  of  a  different  set  of  influences. 
It  lacks  the  centralization  of  wares  into  a  few  great 
competitive  markets,  although  there  are  well-known  cen- 
ters where  special  lines  of  goods  are  sold.  There  are 
no  general  rules  by  which  the  traders  are  governed,  for 
they  do  not  meet  in  an  "exchange"  to  compete  with  each 
other  in  the  buying  of  their  goods.  Articles  like  ma- 
chinery, clothes,  boots,  automobiles,  typewriters  and  so 
on  are  sent  to  various  points  at  which  they  meet  the 
consumer.  At  these  places  will  be  found  the  offices  of 
the  manufacturers,  the  jobbers  and  the  commission  men. 

The  organization  of  the  first  kind  of  market  may  be 
briefly  stated  to  conform  to  the  necessities  of  gathering 
the  raw  materials  from  many  scattered  sources  for  the 
purposes  of  mass  production.  This  gives  us  central 
markets  where  the  dealers  can  congregate  and  compete 
for  the  raw  materials.  The  second  class  of  markets 
must  meet  the  conditions  of  a  reverse  nature.  The 
problem  of  the  manufacturers  is  to  distribute  their  wares 
from  large  centers  of  production  among  numberless 


ORGANIZATION  OF  THE  MARKET  45 

purchasers.  It  is  more  economical  to  break  up  the  mar- 
ket into  small  distributing  points,  and  as  a  consequence, 
the  manufacturer  is  confronted  with  the  complex  prob- 
lem of  devising  means  for  reaching  the  purchasers. 
The  various  steps  taken  in  this  process  give  us  two  dis- 
tinct methods,  the  wholesale  and  retail. 

24.  A  grain  market. — The  annual  receipts  of  grain 
at  Chicago  amount  to  a  total  of  240,000,000  to  300,000,- 
000  bushels.  Wheat  constitutes  from  25,000,000  to 
50,000,000  bushels  of  the  total  grain  receipts.  This 
makes  Chicago  the  greatest  grain  center  in  the  world. 
If,  however,  we  measure  a  market  by  the  number  of 
transactions  which  take  place,  the  above  figures  do  not 
represent  the  market.  The  total  transactions  in  wheat 
alone  far  exceed  the  crop  for  the  whole  country,  and  to 
this  is  added  several  hundred  million  bushels  for  corn 
and  oats.  Such  activity  as  these  figures  represent  as- 
sures to  dealers  the  world  over  an  opportunity  at  all 
times  to  buy  or  dispose  of  any  quantity  of  grain,  wheat 
especially. 

A  peculiar  Characteristic  of  the  market  is  that  it  is  not 
necessary  to  ship  wheat  here  for  delivery  on  every  sale, 
nor  to  take  wheat  on  every  purchase.  It  is  not  even 
necessary  to  take  or  deliver  a  warehouse  receipt  on  every 
transaction.  Contracts  may  "set  off"  other  contracts 
and  hence  this  peculiarity.  The  method  has  its  coun- 
terpart in  the  banking  system,  where  checks  and  drafts 
"set  off"  l  other  checks  and  drafts. 

i  The  Supreme  Court  of  the  United  States  holds  that  "  set-off  has  all 
the  effects  of  delivery."  In  the  decision  of  May  8,  1905  the  following 
decision  was  rendered: 

"When  the  Chicago  Board  of  Trade  was  incorporated  we  cannot  doubt 
that  it  was  expected  to  affor<J  a  market  for  future  as  well  as  present 
sales,  with  the  necessary  incidents  of  such  a  market,  and  while  the  State 
of  Illinois  allows  that  charter  to  stand,  we  cannot  believe  that  the  pits, 
merely  as  places  where  future  sales  are  rrtade,  are  forbidden  by  the  law. 


46  BUSINESS  ORGANIZATION 

25.  Receiving  and  storing  the  supply. — Although  it 
is  not  necessary  to  make  or  to  take  a  delivery  of  actual 
wheat  in  every  transaction,  nevertheless  there  must  al- 
ways be  present  within  easy  reach  a  large  supply  of 
wheat.  It  is  necessary,  therefore,  to  divide  the  market 
into  two  parts,  (1)  the  place  where  the  transactions  of 
buying  and  selling  take  place,  and  (2)  the  departments 
and  facilities  for  receiving  and  trans-shipping,  or  the 
storing,  inspecting  and  grading  of  the  grain.  We  will 
treat  of  them  in  inverse  order.  Chicago  receives  the 
larger  part  of  her  grain  from  the  states  to  the  south- 
west and  west  as  far  as  Kansas  and  Nebraska,  and 
north  as  far  as  southern  South  Dakota  and  southern 
Minnesota.  Although  the  greater  part  of  this  grain 
comes  by  the  railroad,  yet  there  is  a  considerable  volume 
of  grain  brought  in  by  way  of  the  lakes.  Immense 
quantities  leave  Chicago  for  the  eastern  markets  of  the 
United  States  for  Europe  either  by  way  of  the  rail- 
roads or  in  boats  down  the  lakes. 

Much  grain  is  stored  in  this  market  by  means  of  im- 

But  again,  the  contracts  made  in  the  pits  are  contracts  between  the  mem- 
bers. We  must  suppose  that  from  the  beginning  as  now,  if  a  member 
had  a  contract  with  another  member  to  buy  a  certain  amount  of  wheat  at 
a  certain  time  and  another  to  sell  the  same  amount  at  the  same  time,  it 
would  be  deemed  necessary  to  exchange  warehouse  receipts.  We  must 
suppose  that  then,  as  now,  a  settlement  would  be  made  by  the  payment 
of  differences,  after  the  analogy  of  a  clearing  house.  This  naturally 
would  take  place  no  less  that  contracts  were  made  in  good  faith  for 
actual  delivery,  since  the  result  of  actual  delivery  would  be  to  leave  the 
parties  just  where  they  were  before.  Set-off  has  all  the  effects  of  deliv- 
ery. The  ring  settlement  is  simply  a  more  complex  case  of  the  same  kind. 
These  settlements  would  be  frequent,  as  the  number  of  persons  buying 
and  selling  was  comparatively  small. 

"The  fact  that  contracts  are  satisfied  in  this  way  by  set-off  and  the 
payment  of  differences  detracts  in  no  degree  from  the  good  faith  of  the 
parties,  and  if  the  parties  know  when  they  make  such  contracts  that  they 
are  very  likely  to  have  a  chance  to  satisfy  them  in  that  way  and  intend 
to  make  use  of  it,  that  fact  is  perfectly  consistent  with  a  serious  business 
purpose  and  an  intent  that  the  contract  shall  mean  what  it  says." 


ORGANIZATION  OF  THE  MARKET  47 

mense  elevators.  The  combined  capacity  of  all  the 
storage  facilities  is  estimated  at  from  60,000,000  to 
70,000,000  bushels  but  from  this  total  must  be  sub- 
tracted all  those  storage  facilities  that  are  not  used  for 
receiving  and  shipping  and  are  consequently  not  a  fac- 
tor in  the  grain-handling  business.  Not  including  such 
elevators  in  the  list,  there  are  still  about  twenty-four 
private  elevators  with  a  capacity  approximately  of  21,- 
000,000  bushels.  These  are  really  factors  of  the  receiv- 
ing and  shipping  business.  Besides  there  are  fourteen 
public  elevators  with  a  capacity  of  23,000,000  bushels, 
making  a  total  storage  capacity  of  44,000,000  bushels. 
These  are  the  "terminal"  elevators  and  their  function  is 
to  receive  grain  for  storage.  They  are  spoken  of  as 
"public"  or  "regular"  if  they  serve  the  public  generally; 
and  as  "private"  if  they  are  devoted  to  the  interests  of 
their  owners  solely. 

Chicago  is  also  headquarters  for  many  line  elevator 
companies,  some  of  which  have  lines  of  houses  extending 
throughout  the  Central  States,  and  west  through  Illi- 
nois, Iowa  and  Nebraska  and  southwest  through  Kan- 
sas and  Oklahoma.  The  grain  houses  consist  of  the 
terminal  elevator  companies,  the  line  elevator  companies 
and  the  commission  companies.  The  last  may  be  di- 
vided into  -four  classes :  ( 1 )  those  that  transact  a  cash 
grain  business  only,  (2)  those  that  do  both  a  cash  grain 
and  a  "future"  business,  (3)  those  whose  dealings  are 
confined  to  the  future  markets,  (4)  the  buyers  for  such 
interests  as  the  big  mills  and  for  export. 

The  interests  of  the  mills  and  exporters  in  the  market 
are  quite  different  from  those  of  the  elevator  compan- 
ies. The  former  are  always  buying  in  the  open  market. 
They  never  buy  in  the  country.  The  line  elevators  buy 
in  the  country  and  sell  in  the  market.  The  terminal 


48  BUSINESS  ORGANIZATION 

elevator  companies  buy  in  the  market  and  sell  again  in 
the  market  to  the  mills,  to  the  exporter  or  to  the  grain 
men  of  other  cities.  The  commission  men  merely  sell 
the  grain  that  is  shipped  to  them  to  the  best  customer 
they  can  secure. 

26.  Inspection  and  grading. — The  efficiency  of  the 
systems  of  inspection  and  grading  of  commodities  in  a 
market  largely  determines  the  size  and  prosperity  of 
that  market.     The  inspection  must  be  carried  on  by  re- 
liable and  competent  men  and  the  grading  must  be  hon- 
estly done.     Unless  a  commodity  which  is  not  uniform 
in   quality   can   be    graded   into   classes   according   to 
those    qualities  there  can  be  no  organized  market  of 
wide    dimensions.     In    the    first    place,    the    commod- 
ity could  not  be  sold,  by  sample;  and  in  the  second 
place,  all  future  buying  and  selling  would  be  eliminated. 
Men  will  not  contract  to  buy  a  commodity  for  future  de- 
livery unless  they  can  be  sure  of  getting  the  kind  and 
quality  which  they  bargained  for.     The  difficulty  of 
grading  tobacco  so  that  a  definite  contract  grade  could 
be  established  upon  which  trades  for  the  future  might 
be  made  has  limited  the  organization  of  a  tobacco  mar- 
ket.    It  is  nearly  impossible  to  keep  track  of  individual 
lots  of  this  commodity  and  guard  it  against  mixture 
with  inferior  lots  in  the  warehouse.     Therefore  no  one 
will  accept  a  certificate  of  inspection  indicating  a  cer- 
tain lot. 

27.  State  bureaus  of  inspection. — To  give  as  broad 
a  confidence  as  possible  to  the  inspection  of  great  staple 
commodities,  many  states  have  established  bureaus  where 
the  inspection  is  done  by  public  officials.     This  is  true 
especially  of  grain  inspection.     In  Illinois  the  State 
Board  of  Railroad  and  Warehouse  Commissions  has 
supervision  over  this  feature  of  the  business.     Minne- 


ORGANIZATION  OF  THE  MARKET  49 

sota  has  a  similar  commission.  A  certificate  of  inspec- 
tion under  such  circumstances  is  a  guarantee  of  the 
grade  of  the  state.  This  is  important  in  the  export 
trade  of  Duluth  since  its  grades  are  higher  than  the  At- 
lantic seaboard  grades  of  the  same  wheat.  European 
exporters,  therefore,  watch  with  care  all  shipments  from 
Duluth  to  see  that  the  same  grain  goes  through  the  ele- 
vators at  Buffalo  and  is  loaded  on  the  steamers  in  New 
York  City  without  losing  its  identity. 

The  method  of  inspection  is  much  the  same  in  all 
markets.  All  cargoes  loaded  with  grain  coming  into 
Chicago  from  country  points  are  promptly  reported  by 
the  railroad  companies  to  the  grain  inspectors.  These 
men  visit  the  cars  and  secure  samples  of  grain  that  fairly 
represent  the  grain  in  each  car.  Every  car  so  inspected 
is  then  sealed  by  the  inspector.  The  samples  are  turned 
over  to  the  grain  merchants  to  whom  the  cars  were  con- 
signed from  the  local  shipping  center  in  the  country. 
The  grain  merchant  displays  his  samples  in  the  market 
place  of  the  exchange  building  and  the  grain  is  sent  to 
the  elevator.  A  warehouse  receipt  is  issued  upon  the 
acceptance  of  the  grain  by  the  elevator  company.  This 
receipt  together  with  the  sample  of  grain  becomes  the 
basis  for  the  sale  and  purchase  of  this  particular  amount 
and  grade  of  grain.  When  the  grain  is  sold,  the  ware- 
house receipt  is  delivered  instead  of  the  actual  grain,  each 
new  owner  endorsing  the  receipt  when  he  receives  it. 
If  the  holder  of  the  warehouse  receipt  wishes  the  actual 
grain  he  can  obtain  the  same  by  presenting  it  to  the  ele- 
vator company.  Only  those  firms,  however,  can  issue 
warehouse  receipts  that  have  been  declared  "regular," 
that  is  only  such  firms  as  conform  to  the  Board  of  Trade 
rules  covering  the  inspection,  handling  and  storing  of 
the  grain.  The  warehouse  receipt  thus  becomes  a  very 

II— 4 


50  BUSINESS  ORGANIZATION 

important  instrument  of  trade  and  a  heavy  responsibility 
rests  upon  the  superintendent  of  the  warehouse  who  has 
charge  of  the  grain  and  must  keep  it  from  deterioration 
either  by  natural  or  fraudulent  means.  The  various 
grades  must  be  kept  distinct,  although  the  identity  of 
any  particular  lot  may  be  lost. 

The  object  of  grading  is  to  separate  a  commodity  into 
grades  based  on  differences  of  soundness,  color  and  free- 
dom from  impurities.  This  applies  to  grain  especially, 
but  other  commodities  may  offer  other  characteristics 
which  it  would  be  necessary  to  take  into  consideration. 

Each  market  has  its  own  standards  and  as  a  conse- 
quence there  are  many  different  grades.  There  have 
been  many  attempts  at  establishing  a  uniform  grade  for 
wheat  that  would  apply  to  all  markets,  but  without 
much  success.  The  tobacco  grades  are  perhaps  the  most 
local  of  the  great  staple  products  while  the  grades  of 
cotton  are  the  most  uniform. 

28.  Chicago  and  Liverpool  grades  of  wheat. — The 
following  grading  for  wheat  in  a  few  of  the  large  mar- 
kets will  illustrate  the  foregoing  statement : 

Chicago's  "contract  grades"  of  wheat  or  the  basis  for 
transactions  in  the  pit,  are  No.  2  red  winter  wheat,  No.  1 
northern,  and  No.  2  hard  winter.  In  Minneapolis  the 
contract  grade  is  No.  1  northern.  In  the  Duluth  mar- 
ket No.  1  northern  is  the  contract  grade,  but  No.  2  north- 
ern may  be  delivered  on  contracts  at  5  cents  a  bushel 
under  the  price  of  the  former.  The  contract  grade  in 
the  Kansas  City  market  is  No.  2  hard  winter  wheat  of 
not  less  than  fifty-nine  pounds,  but  No.  2  red  may  be 
delivered  at  the  seller's  option. 

There  are  at  least  nine  varieties  of  wheat  deliverable 
on  contracts  in  the  Liverpool  market.  The  wheat 
coming  from  all  parts  of  the  world  as  it  does  makes  the 


ORGANIZATION  OF  THE  MARKET  51 

work  of  establishing  uniform  grades  very  difficult. 
This  important  business  of  inspecting  and  grading  de- 
volves upon  a  special  committee  of  fifteen  members 
elected  by  the  directors  of  the  Liverpool  Corn  Trade 
Association.  There  is  perhaps  no  position  in  the  busi- 
ness world  where  a  man's  judgment  counts  for  more  than 
it  does  in  that  of  inspector  and  grader.1  It  is  the 
grader's  judgment  that  decides  by  what  standard  the 
various  products  shall  be  measured.  When  one  consid- 
ers the  millions  of  bushels  and  millions  of  pounds  of 
products  that  are  entering  the  market — their  selling 
power  in  large  part  predetermined  by  the  inspector's 
judgment — it  is  easily  seen  what  great  opportunities  lie 
in  his  hands  for  changing  the  purchasing  power  of  large 
quantities  of  grain,  cotton  and  other  products — through 
assigning  them  to  one  or  the  other  of  a  number  of 
grades. 

1  The  fundamental  principle  underlying  all  grading  of  commodities  is 
to  discover  the  dominant  characteristics  that  give  the  commodity  varying 
commercial  values. 


CHAPTER  IV 

THE  EXCHANGE 

29.  A  typical  market. — We  have  thus  far  been  treat- 
ing of  the  external  side  of  the  market  and  of  the  various 
factors  upon  which  a  market  of  modern  times  must  be 
organized.     Taking  Chicago  as  the  example,  we  find 
that  the  various  market  interests  not  only  center  in  one 
city  but  are  focused  here  in  one  building — the  Chicago 
Board  of  Trade.     Technically,  the  "market"  is  at  that 
point.     "The  country  miller  of  Illinois,  the  grain  buyer 
of  Iowa,  the  elevator  manager  of  any  center,  the  big 
Minneapolis  miller,  the  terminal  elevator  company  of 
Chicago,  the  exporter  of  New  York,  the  exporter  of 
Argentina,   and  the  importer  of  London,   Liverpool, 
Amsterdam  and  Antwerp — all  come  here  to  buy  or  sell 
wheat  as  a  'hedge'  against  transactions  in  their  regular 
business  activities."  *     To  this  center  too  come  those  men 
who  wish  to  speculate.     The  market  machinery  is  thus 
made  use  of  for  other  than  legitimate  trading.     At 
times  this  speculative  trading  is  of  enormous  propor- 
tions. 

30.  Chicago  Board  of  Trade. — We  must  now  turn  to 
the   inner  organization   of  the   market — or   that   part 
where  the  transactions  take  place.     The  Chicago  Board 
of  Trade  is  generally  spoken  of  as  the  Chicago  market, 
but  they  are  not  the  same  thing.     The  Board  of  Trade 
is  a  corporation  with  officers  and  a  definite  business  pur- 
pose.    It  owns  an  exchange  building  for  the  use  of  its 

i  Rollin  E.  Smith,  "  Wheat  Fields  and  Markets  of  the  World,"  page  300. 

52 


THE  EXCHANGE  53 

members  and  the  corporation  is  empowered  to  make  and 
enforce  rules  concerning  the  buying  and  selling  within 
the  exchange,  but  it  is  in  no  way  connected  with  the  suc- 
cess or  failure  of  the  members.  The  original  objects 
of  the  association  are  thus  defined:  to  maintain  a  com- 
mercial exchange ;  to  promote  uniformity  in  the  customs 
and  usages  of  merchants;  to  inculcate  principles  of  jus- 
tice and  equity  in  trade;  to  facilitate  the  speedy  adjust- 
ment of  business  disputes ;  to  acquire  and  to  disseminate 
valuable  commercial  and  economic  information;  and 
generally  to  secure  to  its  members  the  benefits  of  co- 
operation in  the  furtherance  of  their  legitimate  pursuits. 

The  Board  of  Trade  was  organized  in  1848,  and  in 
1859  by  a  special  act  of  the  legislature  it  was  given  a 
charter.  By  section  4  of  the  act,  "The  said  corporation 
is  hereby  authorized  to  establish  such  rules,  regulations 
and  by-laws  for  the  management  of  their  business,  and 
the  mode  in  which  it  shall  be  transacted,  as  they  may 
think  proper." 

The  membership  numbers  between  1700  and  1800  and 
includes  a  representative  of  nearly  every  important 
grain  commission  and  elevator  company  in  the  country, 
many  of  the  big  millers,  some  of  the  New  York  Stock 
Exchange  members,  even  a  few  European  importers, 
several  hundred  local  grain  commission  men,  elevator 
managers,  brokers,  several  capitalists  and  bankers,  and 
owners  and  representatives  of  the  packing  houses. 
Memberships  have  sold  as  high  as  $4,400,  and  as  low  as 
$475,  the  price  depending  upon  the  demand  for  mem- 
bership seats. 

Buyers  who  are  not  members  of  the  Board  of  Trade 
cannot  transact  business  on  the  floor  of  the  exchange 
themselves.  They  must  employ  a  broker  who  is  a  mem- 
ber and  must  pay  a  commission  for  his  services. 


54  BUSINESS  ORGANIZATION 

The  rules  of  the  exchange  limit  the  time  of  trading  to 
the  hours  between  9:30  A.  M.  and  1 :15  P.  M.  Any  deals 
outside  of  these  hours  cannot  have  the  protection  of  the 
exchange. 

The  transactions  on  the  exchange  are  of  two  kinds, 
though  there  are  many  subdivisions.  There  are  the 
"cash  grain"  business  and  the  "future"  business.  Un- 
der the  former  come  all  the  dealings  which  pertain  to 
the  actual  grain — wheat,  corn,  oats,  etc. — selling  it  by 
sample  and  transferring  it  to  some  elevator  for  storage. 
One  side  of  the  exchange  room  is  given  up  to  this 
"cash"  business.  Here  the  samples  are  laid  out  for  the 
inspection  of  the  various  buyers. 

The  rest  of  the  exchange  floor  is  given  over  to  the 
future  markets.  The  four  points  about  which  the  buy- 
ers and  sellers  habitually  congregate  are  called  "pits." 
There  are  the  wheat  pit,  the  corn  pit,  the  oat  pit  and  the 
provision  pit.  During  the  busy  time  the  combined  mar- 
kets present  "a  scene  of  activity,  intenseness,  seriousness 
and  often  excitement  that  gives  the  impression  of  im- 
pending tragedy,  and  which  is  seen  nowhere  else  except 
on  the  floor  of  the  New  York  Stock  Exchange,  or  in  the 
Paris  Bourse.  During  a  very  active  market  the  wheat 
pit  is  crowded  with  some  350  struggling,  shrieking  men 
endeavoring  to  execute  their  orders;  and  at  such  a  time 
everyone  in  the  exchange  room  seems  to  have  a  realizing 
sense  of  the  importance  of  the  momentous  volume  of 
business  that  is  being  done.  It  is  a  time  when  moments 
are  valuable,  and  a  few  seconds  suffice  to  complete  trans- 
actions. This  necessitates  the  greatest  possible  rapidity 
and  alertness  that  human  beings  are  capable  of,  physical 
and  mental,  and  the  aid  of  all  the  mechanical  appliances 
that  may  be  had.  Orders  are  continually  coming  to  the 
floor  by  telephone  and  by  wire,  and  messengers,  im- 


THE  EXCHANGE  55 

pressed  with  the  demand  for  speed,  are  delivering  them. 
A  large  force  of  telegraph  operators  occupies  one 
corner  of  the  exchange  room.  From  the  time  the  gong 
sounds  at  9 :30  A.  M.  until  it  announces  the  close  at  1:15 
p.  M.,  when  there  is  an  active  market  there  is  no  time 
or  thought  for  anything  but  the  business  of  the  moment. 
What  happened  a  minute  ago  is  past,  and  that  which  is 
to  be  done  a  minute  hence  will  be  attended  to  when  it  is 
reached."  1 

The  pit  traders  are  chiefly  made  up  of  representatives 
of  the  numerous  commission  houses.  There  are  also  in- 
dependent traders  who  act  as  brokers  and  will  execute 
orders  for  any  member  on  a  commission  basis.  Others 
still  trade  only  for  themselves — they  are  spoken  of  as 
"scalpers"  or  "floor  traders."  They  are  speculators. 
The  unit  of  transactions  in  the  pit  for  wheat  is  5000 
bushels.  When  a  trade  is  made  without  any  mention  of 
the  amount,  this  number  of  bushels  is  understood.  All 
trades  of  greater  amounts  are  done  in  multiples  of  the 
unit.  If  a  broker  offers  or  bids  "10,"  "50,"  or  "100" 
it  is  understood  that  10,000  bushels,  50,000  bushels,  or 
100,000  bushels  is  meant. 

31.  Two  classes  of  buyers. — The  orders  received  by 
the  brokers  in  the  future  markets  come  from  every  con- 
ceivable source.  Broadly  speaking,  however,  these 
orders  may  be  divided  into  two  classes.  (1)  Those 
which  are  sent  by  men  who  intend  to  receive  or  deliver 
the  actual  grain  at  sometime  in  the  future.  They  take 
advantage  of  the  market  which  offers  them  an  oppor- 
tunity of  insuring  themselves  against  loss  of  profits  due 
to  a  change  in  the  price  of  some  commodity  upon  which 
their  business  depends.  This  method  of  insurance  is 

i  "  Wheat  Fields  and  Markets  of  the  World,"  Rollin  E.  Smith,  page  303. 


56  BUSINESS  ORGANIZATION 

termed  "hedging"  1  and  is  generally  conceded  to  be  a 
legitimate  business  act.  (2)  There  is  another  class  of 
orders  received,  however,  which  the  senders  never  in- 
tend shall  be  filled  by  receiving  or  delivering  of  the 
actual  grain.  They  expect  to  get  rid  of  either  obliga- 
tion by  selling  on  a  basis  of  "differences."  That  is,  in- 
stead of  delivering  the  actual  commodity  which  the  con- 
tract calls  for,  the  seller,  for  example,  gives  the  buyer 
the  difference  between  the  price  of  the  commodity  on 
the  delivering  date  and  the  price  agreed  upon  when  the 
contract  was  made.  This  class  of  orders  is  called  specu- 
lative, as  it  is  sent  in  by  men  who  buy  and  sell  without 
expecting  to  use  the  grain  or  even  to  see  it.  They  hope 
to  "sell  out  their  trade"  at  an  early  date  and  to  reap  a 
profit  by  a  change  in  price. 

32.  Speculation  and  gambling. — It  would  perhaps  be 
unprofitable  to  try  and  classify  the  various  grades  of 
speculation.  In  one  sense  every  trading  transaction 
is  a  speculation,  and  the  line  between  the  "legitimate" 
trade  and  the  gambling  transaction  is  no  more  distinct 
than  that  which  separates  a  bad  from  a  good  act.  Much 
depends  upon  the  intention,  and  only  the  man  himself  is 

JA  "hedge"  is  a  sale  of  a  commodity  for  future  delivery  in  order  to 
avert  an  anticipated  loss  through  a  change  of  price.  An  English  miller 
needs  wheat  in  February.  He  buys  his  supply  in  Duluth  at  80  cents  a 
bushel.  The  time  between  the  purchase  date  (say  September  1st)  and 
the  date  when  the  wheat  has  been  turned  into  flour  and  sold  is  a  long 
one.  The  price  of  the  raw  material  may  go  down  to  70  cents  before  then, 
and  with  it,  of  course,  goes  the  price  of  the  flour.  He  would  be  compelled 
to  sell  flour  made  of  80-cent  wheat  in  competition  with  other  millers  who 
could  buy  at  70  cents.  To  protect  himself  against  such  loss,  the  miller 
Sells  in  September  upon  the  Chicago  market  for  February  delivery,  the 
same  quantity  of  wheat  perhaps  at  the  same  price  as  that  at  which  he 
bought — 80  cents.  When  February  arrives,  he  again  enters  the  Chicago 
market  and  makes  good  his  delivery  contract  by  buying  the  wheat  at  the 
market  price  of  70  cents.  His  profits  in  this  deal  equal  his  losses  in  the 
other,  and  by  this  process  of  "hedging"  or  "covering"  (as  it  is  sometimes 
called)  he  eliminates  all  risk  in  price  fluctuations,  due  to  raw  material. 
He  is  satisfied  to  make  his  profits  from  the  milling  business. 


THE  EXCHANGE  57 

in  a  position  to  analyze  this,  while  at  times  he  is  doubtful 
as  to  his  own  intentions.  Still  society  has  certain  prac- 
tical standards  which  help  one  in  deciding  what  is  and 
what  is  not  right,  and  also  what  is  and  what  is  not  gam- 
bling. In  certain  stages  of  economic  development  there 
are  more  necessary  risks  to  be  taken  than  in  others. 
The  men  who  take  these  risks  by  investing  their  capital 
are  not  generally  condemned  or  branded  as  gamblers. 
Society  benefits  through  the  efforts  of  these  men.  The 
early  insurance  companies  assumed  the  risks  in  connec- 
tion with  long  sea  voyages.  Very  soon,  however,  a  class 
of  risk  takers  arose  who  did  not  make  good  the  losses 
due  to  accidents  on  the  sea  but  simply  used  the  sailing 
of  a  ship  as  an  incident  upon  which  "to  make  a  bet." 
These  men  assumed  unnecessary  risks.  What  was  one 
bettor's  gain  was  the  other  bettor's  loss  and  the  fate  of 
the  ship  only  supplied  the  incident.  Society  gained 
nothing  from  the  betting  of  these  persons,  and  they  were 
justly  condemned.  Many  persons  follow  the  same 
method  to-day  in  assuming  unnecessary  risks.  They 
simply  bet  on  the  outcome  of  the  price  movements  of 
various  commodities  or  securities.  They  do  not  study 
the  business  conditions  or  the  crop  situations.  They 
simply  "take  a  chance"  blindly  and  ignorantly.  Risks 
are  taken  which  do  not  help  society  and  they  are  con- 
demned and  branded  as  gamblers.  These  gamblers 
take  advantage  of  the  market  machinery  of  the  great 
stock  and  produce  exchanges  and  thus  often  bring  these 
latter  into  bad  repute.  Every  purchase  and  sale  in  the 
pit  affects  prices.  If  the  gambler  supports  a  price 
which  is  not  in  accordance  with  tne  economic  conditions 
he  will  ultimately  lose,  but  his  ignorant  buying  or  sell- 
ing has  in  the  meantime  given  artificiality  to  the  market, 
and  all  unnaturalness  is  bad.  Especially  is  it  con- 


58  BUSINESS  ORGANIZATION 

demned  when  such  activity  gives  uncertainty  as  to  the 
future  bread  supply.  Sentiment  of  this  kind  has  vir- 
tually eliminated  this  feature  of  future  trading  from  the 
London  wheat  market. 

33.  Defense  of  speculation. — The  exchanges  have 
been  criticised  for  not  abolishing  gambling  from  their 
midst,  but  the  brokers  reply  that  they  cannot  distinguish 
between  the  orders  which  they  receive.  Their  orders 
are  to  buy  or  sell.  If  an  order  is  supported  with  the 
requisite  capital,  the  broker  does  not  pretend  to  discover 
either  the  intention  or  the  business  method  of  the  cus- 
tomer. The  economic  argument  in  support  of  the  fu- 
ture trading  in  the  wheat  markets  has  its  basis  in  the 
hedging  operations  of  the  elevator  companies  and  the 
mills  and  other  grain  interests.  The  local  elevator  com- 
panies, for  example,  place  their  hedges  as  soon  as  they 
begin  to  accumulate  stocks  of  grain.  In  the  Northwest 
this  happens  about  the  first  of  September.  Having 
paid  cash  for  their  wheat  and  put  it  in  the  elevator  they 
order  their  broker  to  sell  for  December  delivery.  If 
some  of  this  wheat  is  delivered  by  the  elevator  company 
when  December  comes  round  the  hedge  of  course  is  not 
bought  in;  but  the  wheat  that  must  be  carried  still 
further  into  the  year  must  again  be  provided  for.  The 
December  sale  is  bought  in  the  pit  and  an  equal  amount 
sold  again  for  May  delivery.  The  number  of  these 
hedging  transactions  based  upon  elevator  companies  are 
considerably  increased  because  of  the  organization  of 
the  elevator  business.  There  are  two  kinds  of  elevator 
companies.  Beginning  with  the  "out-of-town"  ele- 
vator companies  which  are  buying  or  selling  against 
their  cash  transactions  in  grain,  there  is  a  steady  volume 
of  hedging  sales  running  through  the  months  from 
September  1st  to  January  1st.  But  these  hedges  are 


THE  EXCHANGE  59 

again  bought  in  when  the  wheat  is  sold  to  the  elevators 
in  the  big  markets.  Now  when  these  terminal  elevator 
companies  buy  the  cash  grain  they  go  through  the  same 
process  of  hedging  as  did  the  out-of-town  elevator  com- 
panies. They  sell  in  the  pit  against  purchases  of  cash 
grain  from  the  country  elevator  and  buy  in  the  pit  as 
they  sell  the  cash  grain  to  millers  or  exporters.  It  is 
now  the  miller's  turn  to  use  the  conveniences  of  the  pit. 
Having  bought  the  wheat  in  the  open  market  from  the 
elevator  company,  supposing  that  flour  has  not  as  yet 
been  sold  against  it,  they  protect  themselves  until  such 
a  sale  is  made  by  immediately  reselling  the  wheat  in  the 
pit.  Then  when  flour  is  sold  the  hedge  is  bought  in 
again. 

The  exporter  follows  the  same  methods  of  insuring 
his  purchases,  and  the  amount  of  such  business  is  very 
large,  but  owing  to  the  manipulations  practiced  by  cer- 
tain powerful  speculators  in  some  of  our  large  markets 
this  class  of  business  has  steadily  declined. 

34.  Course  of  an  order. — All  out-of-town  orders  are 
sent  to  commission  houses  and  are  executed  by  the  pit 
traders  who  represent  the  latter  on  the  floor  of  the  ex- 
change.    To  facilitate  this  business  many  commission 
houses  have  branch  offices  and  agents  in  other  cities 
where  orders  are  taken  and  sent  to  the  central  office 
over    private    wires.     The    Chicago    Board    of   Trade 
offices  have  private  wires  running  to  Winnipeg  and 
Minneapolis  and  Duluth  on  the  north,  to  New  York 
City  and  many  intermediate  points  to  the  east,  and  to 
Kansas  City,  St.  Louis  and  other  points  to  the  west 
and  south.     Orders  from  such  sources  are  generally  re- 
ceived directly  by  the  commission  house  and  sent  to  the 
exchange  floor  immediately. 

35.  Two  kinds  of  traders. — The  pit  traders  may  be 


60  BUSINESS  ORGANIZATION 

divided  into  two  very  natural  classifications — (1)  those 
who  buy  with  the  expectation  that  there  will  be  a  rise  in 
prices  in  the  future  and  (2)  those  who  sell  with  the  hope 
that  when  the  time  comes  to  make  delivery  the  price  will 
have  fallen,  and  thus  enable  them  to  fill  their  contracts 
at  a  lower  figure  than  the  one  stipulated.  These  two 
classes  are  respectively  called  "Bulls"  and  "Bears." 

36.  Method  of  payment. — The  methods  of  payment 
in  the  board  of  trade  are  made  to  conform  to  the  system 
of  future  trading.  It  would  be  a  bungling  system  in- 
deed if  every  purchaser  had  to  make  payment  in  full 
every  time  the  price  changed  during  the  time  the  con- 
tract was  running.  It  is  possible,  however,  by  a  system 
of  differences  to  make  only  partial  payments  until  the 
final  delivery  is  made.  The  amount  paid  over  each  day 
would  therefore  depend  upon  the  price  fluctuation. 
This  is  shown  in  the  following  supposed  case  quoted 
from  Professor  Sparling's  excellent  chapter  on  the  Ex- 
changes in  his  book  on  "Business  Organization." 

Suppose  on  March  10th  A1  sells  B  5,000  bushels  of  wheat  for 
May  delivery  at  95  cents.  On  each  day  thereafter  this  price 
fluctuates,  and  as  the  price  rises  above  95  cents,  B,  having  the 
wheat,  would  thus  be  the  gainer  as  the  market  advances,  and  A 
the  loser;  so  A  would  pass  checks  to  B  for  differences  in  value 
figured  on  the  basis  of  the  closing  market  prices  each  day.  As 
market  prices  lower,  B  v/ould  pass  checks  to  A  for  differences 
shown.  Let  us  suppose  that  by  April  520th  the  price  had  gone 
up  to  97%  cents  per  bushel.  Then  A  would  have  paid  to  B  a 
total  of  2%  cents  per  bushel,  and  B  decides  to  sell  to  C,  who 
finds  on  May  1st  that  the  price  is  still  97%  cents.  A  would 
then  deliver  the  wheat  to  B  in  the  form  of  warehouse  receipts 
which  call  for  the  actual  wheat,  and  for  these  C  would  give  A 
payment  for  the  total  on  a  basis  of  97%  cents  per  bushel ;  but 
i  In  this  illustration,  A  might  be  designated  a  "  bear "  and  B  a  "  bull." 


THE  EXCHANGE  61 

he  has  already  paid  B  Si/o  cents  a  bushel,  so,  while  the  wheat 
costs  C  97%  cents,  A  realizes  but  95  cents  for  it,  B  having 
taken  the  difference.  B  is  in  this  case  purely  a  speculator,  hav- 
ing judged  that  conditions  of  supply  and  demand  would  bring 
about  higher  prices,  and  acted  on  his  judgment.  B  may  have, 
however,  sold  to  D,  and  D  to  C,  and  C  to  K,  and  K  to  X,  of 
the  same  wheat  between  March  10th  and  April  20th,  each  of 
these  traders  having  gained  or  lost  as  the  market  price  fluctu- 
ated from  day  to  day.  These  various  parties,  whether  trading 
directly  for  themselves  or  through  brokers,  were  thus  specula- 
tors, though  not  one  of  them  in  selling  knew  whether  or  not  he 
was  selling  to  C  the  actual  receiver  of  the  wheat,  or  the  genu- 
ine speculator.  When  B  sells  to  D,  he  closes  accounts,  and 
withdraws  from  the  transaction  except  as  shown  by  the  records. 

37.  Margins. — This  method  of  settling  differences 
gives  rise  to  trading  on  "margins."  The  broker  who 
transacts  the  actual  business  in  the  pit  requires  of  each 
customer  a  deposit  of  a  sum  of  money  sufficient  to 
cover  the  ordinary  price  fluctuations.  This  is  on  the 
basis  of  so  many  cents  per  bushel  or  other  unit  of  prod- 
uct. The  broker  does  this  because  he  is  personally  re- 
sponsible to  the  clearing  house  of  the  Exchange,  and  if 
he  would  avoid  losses  he  must  compel  his  customer  to 
keep  up  his  margins.  The  books  of  the  broker  and 
those  of  the  Clearing  House  record  the  transactions  un- 
til closed.  Another  method  sometimes  employed  for 
making  final  settlement  is  that  of  "ringing  out." 

Let  us  suppose  that  A  sells  to  B  a  given  quantity  of  a  com- 
modity of  contract  grade  at  a  price  of  90  cents  per  unit.  The 
ownership  of  this  is  evidenced  by  a  warehouse  receipt.  The 
future  market  closes  that  night  at  91  cents,  so  A  passes  to  B  a 
check  for  one  cent  per  unit.  The  next  day  B  may  sell  to  C, 
and  he,  through  others,  to  K,  and  the  market  closes  that  night 
at  901/2  cents.  Checks  are  passed  between  all  parties  for  differ- 


62  BUSINESS  ORGANIZATION 

ences  between  prices  at  which  purchases  and  sales  are  made, 
with  K  having  paid  %  cent  to  J.  The  process  continues  up  to 
X,  who  buys  when  the  market  is  at  95  cents.  Differences  have 
been  passed,  until  X  has  had  to  pay  to  W,  from  whom  he  made 
purchase,  5  cents  per  unit,  and  to  A  90  cents  per  unit.  In  this 
way  the  ring  is  made  complete,  each  trader  intervening  between 
A  and  X  being  able  to  secure  his  profit  or  pay  his  loss  promptly 
and  obviating  the  necessity  for  the  clearing  house.1 

38.  Clearing-house. — This  is  the  most  improved 
method  for  facilitating  the  settlement  of  contracts.  It 
resembles  bank  clearing-houses  in  large  financial  centers. 
The  economic  importance  of  the  clearing-house  system 
rests  in  the  saving  of  time  and  friction  which  arise  in 
the  settlement  of  a  large  number  of  accounts  by  afford- 
ing a  central  office  and  an  organization  of  trained  offi- 
cials where  the  numerous  transactions  can  be  cleared. 
The  clearing-house  is  an  independent  organization  with 
its  own  set  of  officers,  rules  and  regulations.  Its  func- 
tion is  to  keep  a  record  of  the  sales  and  to  open  up  ac- 
counts with  the  exchange  members. 

In  order  to  facilitate  the  operation  of  settlement  of 
contracts  by  offset  each  member  is  required  to  keep  a 
"settlement  book,"  in  which  shall  be  entered  the  names 
of  parties  with  whom  settlements  have  been  made,  and 
the  dates  and  terms  of  the  trades  included  in  such  set- 
tlements, and  the  terms  of  such  settlements,  and  the 
prices  at  which  the  commodities  were  originally  sold  or 
purchased,  and  the  amounts  due  to  or  from  him  or  them 
on  each  separate  settlement,  also  the  net  amount  due  to 
or  from  him  or  them  on  all  settlements. 

When  the  business  day  ends  the  members  go  to  the 
clearing  house  and  pass  in  their  accounts  or  "reports." 

i  S.  E.  Sparling,  "  Business  Organization,"  page  140. 


THE  EXCHANGE  63 

If  the  clearing  house  sheet  as  made  up  shows  a  credit  to 
the  owner  of  the  "report"  a  draft  for  the  correct  amount 
is  drawn  on  the  clearing  house.  If  the  day's  dealings 
have  netted  the  member  a  loss  he  passes  a  check  for  that 
amount  to  the  clearing  house.  The  clearing  house  per- 
forms the  settlement  and  obviates  the  necessity  of  each 
member  hunting  out  those  with  whom  he  has  made  con- 
tracts during  the  day.  In  the  above  supposed  case. 

When  C  traded  with  B,  then  C's  name  appeared  at  the  close  of 
that  day's  business  on  the  clearing-house  records,  and  when  C 
made  an  opposite  trade  with  D,  then  D's  name  appeared  on  the 
clearing-house  records,  but  C's  obligations  were  closed  and  his 
name  dropped.  This  process  continued,  showing  always  the  or- 
iginal trader  A  and  the  last  trader  up  to  X,  who,  on  delivery  day, 
was  shown  to  be  the  actual  purchaser  of  the  commodity.  The 
clearing-house  clerk  would  pass  these  promptly  to  Mr.  X,  and 
instruct  him  to  make  full  payment  to  Mr.  A,  and  thus  become 
the  new  owner  of  the  commodity.1 

39.  Rules,  regulations  and  management  of  the  ex- 
change. — So  far  in  the  discussion  we  have  been  es- 
pecially concerned  with  the  organization  of  the  exchange 
from  the  point  of  view  of  function.  It  will  be  of  in- 
terest, however,  now  to  examine  the  organization's  rules 
and  regulations  and  management.  The  examples  and 
illustrations  have  been  those  belonging  to  the  produce 
exchanges,  but  the  same  general  outlines  apply  to  the 
stock  exchanges. 

The  distinction  between  the  two  is  only  in  the  char- 
acter of  the  trading.  Each  is  composed  of  a  group  of 
traders  who  agree  to  abide  by  rules  and  regulations  gov- 
erning the  sale  and  purchase  of  agricultural  products 
or  securities.  The  following  are  the  chief  produce  ex- 

i  Sparling,  "  Business  Organization,"  page  190. 


64.  BUSINESS  ORGANIZATION 

changes  in  the  world:  in  the  United  States — Chicago 
Board  of  Trade,  Minneapolis  Chamber  of  Commerce, 
New  York  Produce  Exchange,  New  York  Cotton  Ex- 
change, New  York  Coffee  Exchange,  Duluth  Board  of 
Trade,  New  Orleans  Cotton  Exchange,  Live  Stock  Ex- 
change of  Chicago,  Merchants'  Exchange  of  St.  Louis, 
and  Richmond  Tobacco  Exchange.  In  Europe  are  the 
London  Corn  Exchange,  and  the  "Baltic,"  the  Liver- 
pool Corn  Trade  Association,  the  Liverpool  Cotton  Ex- 
change, the  Manchester  Cotton  Exchange,  the  Liver- 
pool Tobacco  Market,  the  London  Wool  Market,  the 
Bourse  de  Commerce  of  Paris,  the  Bourses  of  Berlin, 
Hamburg,  Amsterdam,  Antwerp  and  Budapest. 

The  organization  and  methods  of  these  various  ex- 
changes differ  in  different  countries,  but  those  of  the 
United  States  are  all  similar.  The  associations  are  in- 
corporated under  state  laws.  They  are  given  power  to 
enforce  their  rules  and  regulations  in  disciplining  their 
own  members.  Some  exchanges  have  powers  of  a 
judicial  nature.  Their  charters  permit  them  to  acquire 
limited  property.  Among  their  most  important  pow- 
ers is  that  of  selecting,  inspecting  and  grading  those 
commodities  admitted  to  the  exchange.  The  certificates 
of  such  inspection  are  binding  upon  all  members. 

The  officers  who  are  to  carry  on  the  business  manage- 
ment of  the  association  and  who  enforce  the  rules  and 
regulations  consist  of  a  president,  vice-president  and  di- 
rectors. Together  these  constitute  the  board  of  direct- 
ors. These  officers  are  elected  by  the  members  of  the 
association.  In  the  United  States  memberships  are 
limited  in  number  and  are  exclusive.  In  some  of  the 
European  exchanges,  however,  membership  is  open  to 
anyone  who  wishes  to  trade. 

The  president  is  limited  in  his  power  as  the  executive 


THE  EXCHANGE  65 

head,  but  he  can  suspend  temporarily  any  member  for  a 
violation  of  the  rules.  The  board  of  directors  is  the 
chief  authority.  With  them  rests  the  responsibility  for 
the  business  and  financial  policy,  the  chief  appointments, 
the  framing  of  the  rules  and  regulations  and  the  fixing 
and  supervision  of  the  grades.  The  appointments  sub- 
ject to  the  board  are  those  of  the  secretary  and  assistant, 
the  treasurer,  the  inspectors,  weighers,  measurers  and 
gangers  together  with  the  necessary  working  staffs.  In 
addition  to  the  president's  power  of  suspension  the 
board  can  expel  any  member  for  violation  of  the  rules 
covering  the  settlement  of  contracts  or  for  being  guilty 
of  "unmercantile"  dealings.  Any  member  in  regular 
standing  subjects  himself  to  the  rules  if  he  accepts 
orders  and  acts  for  a  suspended  member.  It  is  to  this 
board  that  the  warehouses  must  apply  in  order  to  obtain 
certificates  of  regularity. 

The  board  appoints  many  committees,  but  only  one 
can  be  mentioned  here.  This  is  the  committee  on  arbi- 
tration. Disputes  over  contracts  and  settlements  are 
brought  before  this  committee.  The  parties  to  the 
complaints  may  take  an  appeal  to  the  committee  on  ap- 
peals, where  the  case  is  reviewed.  Its  decision  is  final 
if  the  parties  to  the  controversy  have  signed  an  agree- 
ment to  abide  by  the  decision.  If  not,  then  an  appeal 
may  be  taken  to  a  regular  court. 

There  are  also  a  few  rules  protecting  the  traders 
which  it  is  necessary  to  mention.  (1)  A  member  is 
held  personally  responsible  until  the  principal  for  whom 
he  acts  is  made  known.  ( 2 )  A  broker  cannot  designate 
the  name  of  any  person  or  firm  as  the  principal  unless 
the  member  is  in  regular  standing.  (3)  The  rates  of 
commission  are  fixed.  Of  course  they  vary  with  the 
commodity.  Members  get  a  rate  which  is  one-half  that 

II— 5 


66  BUSINESS  ORGANIZATION 

paid  by  outsiders.  In  order  to  keep  non-members  from 
getting  the  benefit  of  the  member's  rates,  a  rule  pro- 
hibits any  member  from  "clearing"  any  trade  not  for 
his  own  account.  (4)  No  person  can  represent  two 
firms  in  the  same  transaction.  This  is  to  prevent  the 
"crossing"  of  orders. 

40.  Complexity  of  the  market  forces. — In  studying 
the  market,  its  function  and  its  organization,  one  is 
struck  by  the  great  number  and  the  complexity  of  the 
influences  which  center  here.  One  may  well  wonder 
how  any  concrete  expression  may  be  given  as  a  resultant 
of  all  these  commercial  forces.  Nevertheless,  every 
moment  during  the  trading  hours,  the  resultant  of  these 
influences  may  be  traced  by  the  movement  of  the  price. 
To-day,  therefore,  the  most  perfect  organization  for  the 
registering  of  prices  is  found  in  the  exchange.  It  is 
here  that  the  keenest  minds  and  the  most  recent  methods 
of  gathering  and  disseminating  news  are  concentrated. 
That  there  is  still  much  room  for  improvement  is  evi- 
denced by  the  prominent  place  which  speculation  holds 
in  the  transactions,  for  speculation  thrives  on  uncer- 
tainty, and  uncertainty  is  simply  another  expression 
for  lack  of  knowledge.  The  advantage  that  one 
speculator  has  over  another  rests  in  his  more  ac- 
curate knowledge.  Therefore  the  attempts  of  spec- 
ulators to  use  every  means  available  for  gathering 
information  tend  to  eliminate  speculation.  This  may 
be  a  long  process,  but  in  the  meantime  the  pro- 
ducer and  consumer  have  the  advantage  of  timely 
information  pertaining  to  the  great  economic  factors 
of  supply  and  demand.  It  is  largely  due  to  the 
speculator  that  modern  commerce  has  made  such  large 
gains  in  those  important  qualities  of  certainty,  regu- 
larity, economy  and  sensitiveness.  The  market  reflects 


THE  EXCHANGE  67 

any  change  from  the  standard  set  at  a  particular  time 
for  any  one  of  these  qualities.  The  telegraph  and  the 
Atlantic  cable  have  made  the  markets  what  they  are  to- 
day. By  their  introduction  the  old  standards  of  cer- 
tainty and  sensitiveness  had  to  be  changed.  Before  the 
first  Atlantic  cable  was  laid  it  cost  about  3  per  cent  to 
get  cotton  through  the  hands  of  the  commission  man  and 
the  broker;  but  within  a  dozen  years  the  charge  was  re- 
duced to  1  per  cent.  The  old  consignment  system  was 
destroyed.  So  sensitive  has  the  commercial  world  be- 
come that  a  cent's  difference  on  a  bushel  of  grain,  or  a 
sixteenth  of  a  cent's  difference  on  a  pound  of  sugar, 
will  change  the  course  of  commerce  in  those  commodities 
from  one  side  of  the  globe  to  the  other.  It  is  only 
through  the  organization  of  the  market  that  such  slight 
changes  can  be  so  accurately  registered.1 

i  Clive  Day,  "  A  History  of  Commerce." 


CHAPTER  V 

MARKETING  OF  MANUFACTURED  GOODS 

41.  Attempts  to  develop  a  special  market. — Attempts 
have  been  made  to  organize  the  market  for  manufac- 
tured goods  along  the  same  lines  as  that  of  the  produce 
exchanges.     The  Manchester  cotton  goods  exchange  is 
an  example.     Here  is  an  attempt  to  put  the  marketing 
in  the  hands  of  an  organized  body  of  traders  holding 
privileged  rights  as  members  of  an  association,  that  is, 
an  organization  controlling  the  inspection,  grading  and 
trading  of  a  manufactured  good.     In  the  Manchester 
exchange  building  the  manufacturers  and  brokers  meet 
daily  and  by  so  doing  a  development  of  better  standards 
of   grading   and   more   uniform   values   is   noticeable. 
Philadelphia  attempted  to  introduce  a  similar  exchange, 
but  so  far  in  America  little  has  been  done  in  this  direc- 
tion.    The    manufacturer    has    sought    the    customer 
either  through  the  wholesaler  and  jobber  or  directly  by 
establishing  branch  houses  and  agencies. 

42.  Manufacturer     and     middleman. — The     earlier 
method  made  use  of  the  middleman,  but  the  modern  or- 
ganization of  production  has  compelled  the  manufac- 
turer to  look  for  means  by  which  he  may  strengthen  his 
control  over  the  market  in  order  to  keep  his  productive 
force  profitably  employed.     The   selling  organization 
has  therefore  been  changed.     It  is  no  longer  left  to  the 
sole  control  of  the  wholesaler.     The  manufacturer  often 
deals  directly  with  the  retailer  or  the  consumer.     He  can 
thus  keep  in  touch  with  the  market's  demand  and  this 

68 


MARKETING  OF  MANUFACTURED  GOODS      69 

enables  him  to  guage  his  factory  output.  The  whole- 
saler by  his  position  has  forced  the  manufacturer  into  a 
dependent  position.  If  the  middleman  found  it  profit- 
able to  change  from  one  line  of  goods  to  another,  the 
manufacturer  who  had  depended  upon  him  for  his  mar- 
ket was  left  helpless.  Likewise  the  middleman  often 
forced  unfavorable  trade  compacts  upon  the  factory 
management. 

One  of  the  first  steps  taken  by  the  competing  manu- 
facturers was  to  curtail  the  losses  due  to  competition 
through  a  consolidation  of  their  selling  interests.  Thus 
one  sales  department  took  the  place  of  several,  or  the 
market  was  divided  and  all  matters  of  common  interests 
of  the  several  firms  were  determined  according  to  a  com- 
mon policy.  The  factories  retained  their  own  identity 
so  far  as  all  matters  of  production  were  concerned.  Be- 
fore 1903  the  International  Harvester  Company  was 
one  of  the  best  examples  of  this  policy.  For  fifty  years 
the  harvester  kings  fought  one  another  in  the  open  mar- 
ket. Out  of  two  hundred  companies  which  had  fought 
for  market  supremacy  only  a  dozen  were  left  in  1902. 
The  first  consolidation  in  the  harvester  business  was  ef- 
fected in  1867.1 

Other  examples  of  associations  for  division  of  terri- 
tory are  those  of  the  former  union  between  the  Imperial 
Tobacco  Company  of  Great  Britain  and  the  American 
Tobacco  Trust,  and  the  trade  agreement  between  the 
English  Sewing  Cotton  Company,  the  American 

i  After  a  severe  reaper  test  in  the  grain  field  between  William  N.  White- 
ley  and  Benjamin  H.  Warder,  the  latter  proposed  to  Whiteley  that  they 
quit  fighting  and  work  in  harmony. 

"  Give  me  the  right  to  make  your  reaper  and  I'll  pay  you  $5  apiece  for 
all  I  can  sell,"  said  Warder.  "  It's  a  bargain,"  responded  Whiteley.  They 
did  not  merge  their  companies,  but  they  divided  the  United  States  into 
three  parts  —  one  for  Whiteley,  one  for  his  brother,  and  one  for  Warder. 
— "  The  Romance  of  the  Reaper,"  by  H.  N.  Casson. 


70  BUSINESS  ORGANIZATION 

Thread  Company,  and  J.  &  P.  Coats,  Limited— in  the 
case  of  the  tobacco  trust,  each  was  to  be  left  to  exploit 
its  own  country,  while  the  thread  combination  was  to 
divide  the  cotton-thread  trade  of  the  world  among 
them.  The  weak  points  in  this  form  of  association  rest 
in  the  charges  and  counter  charges  of  encroachment  of 
the  companies  upon  one  another's  territory. 

Perhaps  the  highest  organization  of  this  kind  is  rep- 
resented by  the  kartell  of  Germany.  Here  the  asso- 
ciated firms  are  left  to  themselves  in  matters  pertaining 
to  production ;  the  function  of  marketing  the  total  prod- 
uct is  entrusted  to  a  separate  organization  controlled  by 
a  committee  of  the  association.  All  orders  are  sent  to 
the  sales  agency,  which  distributes  them  among  the 
firms,  reserving  to  each  as  far  as  possible  its  old  clien- 
tele and  allocating  new  business  in  the  same  proportions 
as  the  old.1 

An  example  of  this  method  is  found  in  the  association 
called  the  Central  Thread  Agency,  which  marketed  the 
goods  of  Messrs.  Coats,  Chadwick,  Clarke,  and  Brooks 
for  some  years  before  these  firms  amalgamated.  After 
the  union  of  these  companies  the  selling  association  was 
still  maintained.  The  relation  of  the  association  to  the 
manufacturers  was  changed,  for  now  the  agency  be- 
came a  subsidiary  company  and  the  common  ownership 
of  the  capital  became  the  controlling  factor  in  the  man- 
agement. The  Standard  Oil  Company,  the  Tobacco 
Trust  and  the  Sugar  Trust  all  used  this  method  for  some 
years  but  hostile  legislation  compelled  them  to  reorgan- 
ize this  method  of  selling. 

43.  Agency  methods  of  selling. — Apart  from  any 
connection  with  the  process  of  consolidation  both  small 
and  large  firms  are  extending  their  control  over  the  sale 

i  "  The  Trust  Movement  in  Great  Britain,"  by  Henry  W.  Macrosty. 


MARKETING  OF  MANUFACTURED  GOODS     71 

of  their  output  by  establishing  some  form  of  agency. 
It  is  the  common  practice  for  manufacturers  to  estab- 
lish branch  offices  at  some  of  the  most  important  points 
of  distribution.  These  agencies  may  be  supported 
wholly  or  in  part  only  by  the  factory.  If  the  corpora- 
tion is  a  large  one  and  covers  a  large  section  of  the 
country  by  its  sales,  some  central  city,  such  as  New 
York,  Chicago  or  St.  Louis,  is  selected  for  the  main 
office,  having  as  its  function  the  supervision  of  the 
agencies  throughout  its  territory. 

These  agencies  may  be  in  the  form  of  wholesale  or  re- 
tail houses.  The  character  of  the  trade  must  determine 
which  system  is  adopted.  The  large  meat  packers  dis- 
tribute probably  99  per  cent  of  their  dressed  meats  and 
a  large  percentage  of  their  packed  goods  through  their 
own  wholesale  houses,  which  are  established  in  different 
cities.  The  packers'  wholesale  branches  sell  only  to 
retailers  and  not  to  consumers.  The  outcome  of  this 
policy  has  been  to  annex  the  local  butchers  to  the  sales 
departments  of  the  large  packing  concerns.  There  are 
two  exceptions  to  be  noted  in  the  above  statements,  and 
they  are  important  since  they  show  how  closely  inter- 
woven into  the  system  of  distribution  is  each  method  and 
form  of  reaching  the  market.  The  packers  put  some  of 
their  packed  goods  on  the  market  through  wholesale 
grocery  stores  which  are  not  owned  by  them ;  and  some 
large  buyers  such  as  hotels  are  able  to  buy  directly  from 
the  packer's  wholesale  house  and  need  not  necessarily 
buy  through  the  retail  butcher.  Illustration  of  the 
growth  of  this  practice  is  seen  in  the  cases  of  the  three 
largest  packing  houses. 

The  Armour  Packing  Company  controls  more  than 
fifty  branch  houses  throughout  the  Western  and  South- 
ern states.  In  the  eastern  and  northern  sections  of  the 


72  BUSINESS  ORGANIZATION 

Mississippi  Valley  and  along  the  Atlantic  coast  the  com- 
pany controls  226  branches.  Sixteen  of  these  belong  to 
the  Omaha  territory  and  210  are  controlled  from 
Chicago.  The  Nelson  and  Morris  Company  have  their 
branch  houses  distributed  as  follows:  in  Pennsylvania, 
17;  New  York,  13;  New  Jersey,  6;  Massachusetts,  6; 
Michigan,  6;  Arkansas,  6;  Connecticut,  5;  Ohio,  5; 
Illinois,  3 ;  Minnesota,  3 ;  Virginia,  3 ;  Georgia,  3 ;  Indi- 
ana, 2;  and  one  each  in  Maryland,  Washington,  D.  C., 
New  Hampshire,  Maine,  Wisconsin,  Alabama,  Louisi- 
ana, Tennessee  and  Missouri.  Swift  and  Company 
controls  from  its  principal  centers  of  Chicago,  Kansas 
City,  South  Omaha,  South  St.  Paul  and  East  St.  Louis 
more  than  180  branch  houses. 

Such  a  system  as  this  would  have  been  impossible  be- 
fore the  invention  of  the  refrigerator  car  and  the  exten- 
sion of  the  railroad  to  every  center  of  meat  consumption. 
The  "route  car"  has  taken  the  place  of  the  local  slaughter 
house  and  in  most  cases  the  local  butcher  shop  has  be- 
come a  distributing  agent  of  the  large  packer. 

Another  example  of  direct  selling,  which  goes  a  step 
nearer  the  consumer,  is  furnished  by  the  National  Bis- 
cuit Company.  This  concern  is  an  amalgamation  of 
several  independent  manufacturers,  and  sells  most  of  its 
product  directly  to  the  retailers.  They  have  distribut- 
ing agencies  in  most  of  the  big  cities  of  the  United 
States  and  deliver  their  goods  by  means  of  their  own 
equipment.  In  this  respect,  however,  the  National  Bis- 
cuit Company  is  an  exception  to  the  general  policy  fol- 
lowed in  the  marketing  of  grocery  products.  These 
goods  are  handled  through  jobbers,  and  a  very  slight 
control  over  the  retail  prices  exists  on  the  part  of  the 
manufacturer. 

The  motives  impelling  the  adoption  of  direct  selling 


MARKETING  OF  MANUFACTURED  GOODS      73 

by  the  National  Biscuit  Company  is  interesting.  A 
jobber's  salesman  can  handle  with  considerable  ease  ten 
or  twelve  leading  lines  of  biscuits,  but  when  it  comes  to 
selling  200  kinds  an  expert  is  needed.  The  salesman 
must  furnish  much  of  the  market  experience  that  the 
merchant  should  possess  himself,  but  owing  to  growing 
demand  and  shifting  tastes  the  grocer  is  dependent  upon 
a  specialist  who  can  supply  this  needed  market  informa- 
tion. The  National  Biscuit  Company's  salesmen  must 
be  able  to  advise  the  grocer  what  lines  he  should  keep  in 
stock  and  in  what  quantities,  hence  the  salesman  must  be 
thoroughly  acquainted  with  the  popular  demand  and 
also  the  keeping  qualities  of  the  biscuits.  The  company 
always  stands  ready  to  take  back  any  excess  stock  which 
the  grocer  may  have  left  on  his  hands  and  instructs  its 
salesmen  in  the  art  of  "window  dressing"  in  order  that 
the  grocery  store  may  have  expert  advice  in  arranging 
its  displays  of  biscuits. 

The  sale  of  tobacco  products  offers  another  illustra- 
tion of  direct  selling.  The  American  Tobacco  Com- 
pany sells  almost  all  its  product  through  jobbers,  with 
the  exception  of  certain  sections  of  the  South  where 
long  credits  are  the  rule.  The  company  has  large 
wholesale  houses  in  the  principal  cities  and  does  the  sell- 
ing through  them.  In  the  country  districts  and  small 
towns  the  company's  goods  are  handled  by  local  jobbers 
or  independent  wholesale  grocers  or  druggists.  These 
latter  are  very  important  factors  in  the  tobacco  trade 
and  hence  it  is  the  policy  of  the  former  "trust"  to  avoid 
offending  them  by  selling  directly  to  the  retail  trade. 

To  meet  the  "independents"  the  "trust"  pushes  its 
business  into  the  retail  trade  by  stimulating  the  jobber. 
The  quantity  system  is  thus  applied  very  effectively. 
By  this  method  the  jobber  must  buy  a  certain  supply  of 


74  BUSINESS  ORGANIZATION 

tobacco  in  any  one  year  exceeding  in  amount  that  bought 
in  the  previous  year.  Unless  he  sells  this  stipulated 
amount  his  profits  are  nothing,  since  these  depend  upon 
the  rebates  or  discounts  connected  with  the  system.  By 
another  method  the  company  allows  the  jobber  to  push 
its  interests  upon  the  retailer.  This  is  called  the 
method  of  direct  shipment.  The  jobber  may  obtain  an 
order,  but  the  trust  ships  directly  to  the  retailer ;  by  this 
means,  especially  if  the  order  be  a  large  one,  the  ex- 
penses may  be  reduced  and  the  benefit  given  to  the  re- 
tailer through  a  slight  reduction  of  cost.  Another 
phase  of  the  quantity  system  is  seen  in  the  practice  of 
the  manufacturer  establishing  a  jobber's  list.  Under 
this  practice  any  retailer  who  can  buy  in  wholesale 
quantities  can  secure  jobber's  rates.  The  effect  of 
these  policies  has  been  to  reduce  the  jobbing  business. 
To  meet  the  attack  upon  their  interests  the  jobbers  have 
moved  into  the  retail  field  themselves.  They  did  it  by 
establishing  their  own  retail  stores.  The  greatest  de- 
velopment in  this  direction  has  been  in  the  cigar  trade, 
the  United  Cigar  Stores  Company  and  the  National 
Cigar  Stands  Company  being  the  present  exponents  of 
this  multiple  store  policy  on  a  national  and  international 
scale.  The  origin  of  the  latter  was  an  outgrowth  of  the 
jobber's  attempt  to  keep  control  of  the  market.  Its 
object  is  to  do  the  buying  for  the  drug  store  and  gen- 
erally to  supervise  the  methods  of  buying  and  selling 
their  cigars. 

44.  Selling  directly  to  customers. — The  organization 
of  the  selling  business  is  not  always  impelled  by  the  de- 
sire to  control  the  market  more  firmly  or  by  a  wish  to 
save  the  middleman's  profits.  The  method  of  trans- 
portation or  its  costs  sometimes  influences  the  system  of 
distribution.  The  chemical  industries  present  such  a 


MARKETING  OF  MANUFACTURED  GOODS      75 

case.  The  proportion  of  weight  and  bulk  to  value  in 
this  line  of  goods  is  often  very  large.  Consequently 
there  is  a  saving  in  expenses  if  the  goods  can  be  put  as 
directly  as  possible  into  the  consumer's  hands. 

Whenever  the  quantities  ordered  warrant  it  the  manu- 
facturer ships  directly  to  the  consumer.  Consequently 
the  jobber  never  carries  a  large  stock.  There  seems  to 
be,  however,  a  strong  connection  between  dealers  and 
customers,  and  the  manufacturer  is  compelled  to  keep 
in  touch  with  the  jobber.  The  latter,  therefore,  receives 
a  commission  for  all  the  orders  sent  in,  and  the  company 
generally  protects  the  jobbers  by  charging  the  outside 
buyer  the  wholesale  price  plus  the  commission.  If  a 
dealer  has  been  appointed  agent  for  a  certain  district 
the  company  credits  all  orders  to  him  though  some  buy- 
ers may  send  orders  independently  of  their  agent. 
However,  there  are  exceptions  to  this  policy  in  the 
chemical  trade.  On  the  one  side  will  be  found,  for  ex- 
ample, a  large  alkali  manufacturer  who  appoints  one 
firm  general  sales  agent,  and  this  firm  looks  after  the 
sub-agents.  On  the  other  side,  there  is  a  big  firm  of 
medicinal  drug  manufacturers  in  Philadelphia  which 
omits  the  jobber  entirely  and  sells  only  to  retail  dealers. 
A  small  reduction  is  allowed  in  the  price  on  large 
orders. 

Another  trade  that  shows  peculiar  conditions  con- 
nected with  transportation  is  the  oil  business.  The 
newer  method  of  distributing  oil  is  by  the  use  of  large 
tank  cars.  Only  those  dealers,  therefore,  can  handle 
the  commodity  who  have  the  necessary  tank  apparatus 
for  the  oil  after  it  is  removed  from  the  car.  This  sys- 
tem has  helped  to  displace  the  middleman.  To-day  only 
about  10  per  cent  of  the  dealers  are  outside  the  control 
of  the  Standard  Oil  Company.  The  majority  of  these 


76  BUSINESS  ORGANIZATION 

independents  are  wholesale  grocery  concerns  supplying 
oil  in  barrels  to  a  few  customers.  In  some  cases  the 
Standard  Oil  Company  undertakes  the  delivery  of  oil 
to  the  household  consumer  by  means  of  tank-wagons. 
This  method  is  adopted  where  local  dealers  are  under 
the  influence  of  a  rival  company. 

A  special  cause  for  removing  the  jobber  and  "going 
direct"  exists  in  the  iron  and  steel  trades.  The  commis- 
sion agent,  or  jobber,  was  able,  owing  to  the  character 
of  the  goods,  to  quote  a  price  for  future  delivery  below 
that  quoted  by  the  producer.  Of  course,  he  counted  on 
a  fall  in  prices  before  it  was  necessary  to  cover  his  con- 
tract and  often  he  induced  a  fall  by  his  attitude,  if  not 
by  his  manipulation.  This  illustration  is  important  in 
another  respect  in  showing  that  speculation  attaches  it- 
self easily  to  a  commodity  that  has  standard  grades  and  a 
wide  market,  and  a  special  market  is  not  always  neces- 
sary to  support  speculation  as  a  factor  in  trading.  In 
this  case  the  manufacturer  felt  his  control  over  the  price 
of  his  product  growing  very  weak.  The  jobber  by 
quoting  lower  prices  for  a  certain  quality  of  iron  set 
other  dealers  to  doing  the  same  thing.  It  was  only  a 
matter  of  time,  therefore,  when  the  manufacturer  would 
be  compelled  to  revise  his  prices.  To  avoid  this  he  re- 
fused to  sell  the  jobber  and  hence  the  latter  have  been 
decreasing  in  numbers  during  the  last  twelve  years. 

In  some  lines  of  business  where  the  jobber  is  still 
thoroughly  intrenched  it  becomes  advisable  for  the  man- 
ufacturer to  sell  directly  to  the  retailer.  Hardware  is 
sold  almost  entirely  through  jobbers,  but  sometimes  in 
order  to  push  a  novelty  or  a  new  specialty  the  manufac- 
turer assumes  the  expense  of  creating  a  market  for  it. 
The  jobber  seldom  objects  to  this,  for  as  soon  as  it 
"catches  on"  the  retailer  must  buy  his  further  supplies 


MARKETING  OF  MANUFACTURED  GOODS       77 

through  the  jobber.  In  the  case  of  such  mechanical 
specialties  as  typewriters,  cash  registers,  sewing  ma- 
chines, etc.,  the  manufacturer  generally  establishes 
agencies  or  branch  houses  throughout  the  country  and 
by  so  doing  brings  the  goods  directly  to  the  consumer. 

The  boot  and  shoe  industry  has  been  under  the  domi- 
nance of  the  middlemen  so  long  that  only  in  a  few  in- 
stances have  the  manufacturers  been  able  to  break  away 
from  their  control  and  find  a  market  themselves.  Some 
of  the  stronger  firms  have  gone  to  the  consumer  directly 
through  their  own  retail  stores ;  but  where  this  has  been 
impossible  they  have  reached  the  retailers  through  their 
own  disbursing  agencies.  The  boot  and  shoe  trade  also 
illustrates  a  general  tendency  in  the  order  of  displacing 
the  jobber.  It  is  the  finer  grades  of  shoes  that  the 
manufacturer  puts  upon  the  market  himself,  the  coarser 
qualities  being  still  disposed  of  through  the  jobber. 
Thus  a  factory  may  put  out  a  high  class  shoe  under  the 
manufacturer's  name,  while  the  poorer  grades  of  shoes 
are  placed  on  the  market  by  the  jobber,  stamped  with 
the  latter's  name.  Some  brands  of  shoes  have  become 
so  well-known  under  the  jobber's  name  that  he  can  de- 
mand from  the  manufacturer  the  surrender  of  his  own 
trade  mark.  This  peculiarity  has  produced  two  inter- 
esting developments.  In  one  case  where  the  manufac- 
turer refused  to  comply  with  this  request  the  jobbers 
went  into  the  manufacture  of  shoes  on  their  own  account. 
Again,  one  large  manufacturing  firm  adopted  the  plan 
of  doing  its  own  jobbing  because  the  jobbers  refused  to 
handle  shoes  under  the  manufacturer's  name. 

This  same  method  is  also  found  in  other  industries. 
Some  of  the  independent  manufacturers  of  tobacco 
place  their  whole  output  on  the  market  through  some 
large  jobber  who  uses  his  own  brands.  Thus  we  have 


78  BUSINESS  ORGANIZATION 

the    manufacturer's    brand    and    the    jobber's    brand. 

45.  Selling  through  commission  houses — broker  and 
converter. — The  textile  industries  display  more  varied 
forms  and  methods  of  marketing  their  products  than 
most  other  lines  of  business.  Some  of  the  principal 
factors  determining  the  organization  of  the  selling 
methods  are  the  extent  of  territory  over  which  the  sales 
must  take  place  and  the  method  of  financing  the  factory 
operations.  Cotton,  woolen  and  silk  factories  show  dif- 
ferent degrees  of  approach  to  the  direct  method  of 
marketing  goods.  The  middlemen  in  the  cotton  and 
woolen  trade  are  the  commission  men,  the  brokers,  the 
jobbers  and  the  converters,  the  last  having  functions  be- 
longing both  to  the  producer  and  the  middleman.  The 
converter  takes  the  rough  weave  or  "gray  goods"  and 
converts  them  into  grades.  If  he  is  buying  on  his  own 
account  the  goods  are  then  turned  over  to  some  finishing 
house  where  the  bleaching,  folding  and  coloring  takes 
place.  The  converter  generally  has  a  New  York  office 
as  this  is  the  market  for  printed  goods. 

The  commission  men  are  supported  in  these  trades 
principally  for  two  reasons.  In  the  sale  of  cotton  goods 
the  buyers  are  so  scattered  and  the  distances  so  great 
that  it  is  hardly  possible  for  the  mill  to  have  its  own 
salesmen.  In  the  sale  of  the  yarn,  the  spinners,  espe- 
cially in  the  South,  are  financially  weak  and  they  rely 
upon  the  commission  houses  to  furnish  them  with  capi- 
tal; and  again,  although  yarn  is  a  simple  thing  to  sell, 
nevertheless  there  is  economy  in  having  one  firm  of  com- 
mission men  deal  with  a  manufacturer  of  cotton  goods. 
The  latter  must  buy  more  than  one  style  or  kind  of  yarn 
and  he  prefers  to  do  this  by  dealing  through  one  firm 
rather  than  through  several.  But  the  strong  tie  between 
the  spinner  and  the  commission  men  is  the  financial  one. 


MARKETING  OF  MANUFACTURED  GOODS      79 

However,  as  the  spinners  of  yarn  become  financially 
stronger  there  is  a  tendency  for  them  to  break  away 
from  the  commission  house  and  to  employ  brokers  in 
finding  a  market. 

The  broker's  business  is  to  bring  the  buyer  and  seller 
together;  he  receives  for  this  a  brokerage  of  I1/?  to  2 
per  cent.  He  is  not  as  yet  a  strong  factor  since  com- 
paratively few  goods  are  sold  this  way,  and  these  are 
chiefly  of  the  kind  that  are  of  comparatively  high 
grade.  The  print  cloths  of  Fall  River  are  the  chief 
line  of  goods  sold  in  this  way. 

The  commission  business,  on  the  other  hand,  is  a  very 
essential  part  of  the  system.  In  many  of  the  textile 
industries  the  manufacturers  have  had  barely  enough 
capital  to  supply  the  factory  needs,  let  alone  the  selling 
end  of  the  business.  They  have  relied  chiefly  on  ad- 
vances made  by  commission  houses.  This  applied  to 
both  the  New  England  and  the  southern  mills  until  re- 
cently. The  method  of  advancing  money  is  done  by 
allowing  the  manufacturer  to  draw  drafts  against  con- 
signments to  the  commission  house,  amounting  to  from 
70  to  90  per  cent  of  the  value  of  the  goods.  The  former 
are  now  becoming  more  independent.  In  contrast  with 
the  broker,  therefore,  we  find  the  commission  house  per- 
forming several  functions.  They  store  the  goods,  ad- 
vance money  on  them,  sell  them  in  their  own  name  and 
guarantee  payment  of  the  accounts  to  the  manufacturer. 
The  commission  man's  income  is  represented  by  a  5  per 
cent  commission,  interest  on  advances,  an  allowance  for 
insurance  and  a  bonus  of  one  or  two  per  cent  in  the 
form  of  a  discount. 

In  the  silk  business  considerations  are  different.  The 
territory  to  be  covered  is  not  so  extensive  nor  is  the 
trade  so  scattered.  Accordingly  it  is  possible  for  the 


80  BUSINESS  ORGANIZATION 

big  mills  of  Paterson  and  Jersey  City  to  have  their 
own  selling  agencies  in  New  York  City,  where  the 
buyers  of  the  country  may  come  to  make  purchases. 
Wherever  it  seems  advisable  to  put  salesmen  on  the 
road,  the  companies  do  not  find  it  impossible  to  cover 
the  territory  since  the  buyers  of  silk  goods  are  limited  in 
number  as  compared  with  the  market  for  cotton  goods. 

The  woolen  mills  stand  next  in  dispensing  with  the 
commission  house  but  as  yet  only  the  larger  mills  have 
established  selling  agencies  of  their  own,  and  these  like 
the  cotton  factories  are  for  the  disposal  of  the  finer 
goods.  A  change  in  the  demand  for  ready-made  cloth- 
ing has  helped  the  development  in  this  direction  since 
it  concentrated  the  buying  of  woolen  cloth.  When 
tailor-made  or  home-made  clothing  was  the  prevailing 
kind  of  wearing  apparel,  the  buying  was  scattered  and 
the  market  was  difficult  to  cover.  Now  the  output  of 
a  whole  mill  can  be  taken  by  some  of  the  large  ready- 
made  clothing  establishments.  Similarly  in  the  case  of 
carpets  the  manufacturers  sell  their  own  product  directly 
to  the  jobbers  or  the  large  retailers.  This  is  especially 
true  in  Philadelphia.  One  of  the  most  notable  exam- 
ples is  that  of  the  American  Woolen  Company  which 
has  dispensed  entirely  with  the  commission  house  and 
sells  directly  to  the  wholesalers  and  the  manufacturing 
clothiers. 

Other  examples  are  those  of  the  makers  of  textile 
specialties,  such  as  the  shirt,  collar  and  cuff  manufac- 
turers of  Troy,  N.  Y.  In  the  hat  business  several  of 
the  largest  firms  have  offices  in  New  York  and  other 
central  cities.  The  J.  B.  Stetson  Company  also  em- 
ploys a  force  of  traveling  agents  to  visit  the  retail  trad- 
ers throughout  the  country. 

46.  Mail-order  method. — In  regard  to  the  mechanism 


MARKETING  OF  MANUFACTURED  GOODS      81 

of  direct  selling  it  is  well  to  remember  that  it  is  only  one 
of  the  means  whereby  the  manufacturer  attempts  to 
control  the  market.  So  far  we  have  taken  only  the 
various  agency  forms  of  going  directly  to  the  wholesaler 
or  to  the  final  consumer.  There  is,  however,  another 
method  of  reaching  the  market  directly  from  the  fac- 
tory, and  that  is  by  the  "mail-order"  method.  In  this 
case  the  catalogue,  the  newspaper,  the  magazine  and 
various  advertising  schemes  invite  the  buyer  to  send  di- 
rectly to  the  factory,  and  the  manufacturer  sends  back 
the  filled  order  through  the  post,  by  the  express  company 
or  by  freight.  In  the  list  of  industries  following  this 
method  may  be  found  ready-made  clothing  manufactur- 
ing, furniture  making  and  boot  and  shoe  manufactur- 
ing. This  method  is  not  confined  to  the  manufacturer 
but  is  adopted  by  some  of  the  largest  distributing  firms. 
The  largest  of  these  are  the  Montgomery  Ward  &  Com- 
pany and  Sears,  Roebuck  &  Company  of  Chicago. 
These  houses  deal  in  a  large  assortment  of  goods  and 
their  business  is  strictly  retail  by  mail.  No  goods  are 
sold  over  the  counter. 

The  development  of  this  system  in  both  the  United 
States  and  England  has  been  hindered  by  outside  fac- 
tors. In  the  United  States  the  parcel  post  system  has 
only  recently  been  introduced.  In  England  the  "cash 
on  delivery"  practice  introduced  into  this  country  by 
the  express  companies  has  never  become  established; 
and  without  this  practice  the  parcel  post  is  not  half  so 
efficient  a  factor  in  distribution.  This  obstacle  in  Eng- 
land is  difficult  to  overcome,  since  it  involves  changing 
the  trading  custom  of  a  whole  nation. 

The  extension  of  the  "mail-order"  business  is  also 
opposed  by  the  local  retailer  for  in  most  cases  it  means 
his  elimination  even  more  effectively  than  was  the  case 

II-6 


82  BUSINESS  ORGANIZATION 

when  the  large  department  store  was  introduced.  But 
the  "mail-order"  house  must  always  be  handicapped  by 
the  distance  to  be  covered  and  the  consequent  delay  in 
filling  the  orders,  as  well  as  its  dependence  upon  the 
strictly  cash  terms. 

47.  Manufacturer's  retail  stores. — In  reviewing  the 
methods  of  direct  selling  by  the  manufacturer  one  is  im- 
pressed by  the  increasing  growth  of  the  retail  stores 
owned  by  or  controlled  by  the  manufacturer.  It  might 
be  well  therefore  to  examine  this  development  more 
closely.  In  dealing  with  the  subject  it  might  be  more 
convenient  if  we  classify  the  retail  stores  established  by 
manufacturers.  In  the  first  place  it  should  be  noted 
that  certain  products  are  virtually  excluded  from  this 
method  of  selling.  Such,  for  example,  is  sugar.  The 
character  of  the  demand  for  this  and  like  commodities 
compel  a  system  of  distribution  which  meets  the  great 
mass  of  consumers  at  every  point  possible.  This  is 
best  done  through  the  ordinary  dealer.  If  on  the  other 
hand  the  product  is  such  that  the  customer  will  seek  it 
in  some  particular  district,  then  the  manufacturer  may 
be  able  to  stand  the  expense  connected  with  the  estab- 
lishment of  branch  stores  for  the  retailing  of  the  goods. 
Specialty  goods,  such  as  the  typewriter  and  others  men- 
tioned above,  come  first  under  the  classification.  Ac- 
cordingly we  find  these  products  sold  in  retail  stores  and 
exclusive  agencies  owned  by  the  manufacturers.  Con- 
nected with  this  method  are  the  local  repair  depart- 
ments. One  large  camera  company  markets  its  whole 
product  through  the  exclusive  agencies. 

In  the  case  of  boots,  shoes  and  hats  we  have  a  dif- 
ferent class  of  direct  selling.  The  distinction  is  marked 
( 1 )  by  the  fact  that  the  retail  store  is  devoted  solely  to 
one  line  of  goods,  and  (2)  by  the  fact  that  these  stores 
are  located  in  shopping  districts.  The  exclusive  boot 


MARKETING  OF  MANUFACTURED  GOODS      83 

and  shoe  store  was  a  feature  of  the  distribution  system 
before  the  manufacturer  entered  the  retail  field.  He 
simply  carried  the  narrowing  process  a  step  further  by 
limiting  the  stock  carried  to  his  own  brands,  excluding 
all  other  lines  of  shoes.  The  principal  firms  following 
this  method  are  the  Walk-over,  Douglas,  Regal,  Craw- 
ford, Emerson  and  All-America  Shoe  Companies. 
The  W.  L.  Douglas  Shoe  Company  maintains  76 
exclusive  stores  and  the  Regal  Shoe  Company  over  one 
hundred.  These  companies  present  only  examples  of 
tendencies,  for  if  the  boot  and  shoe  trade  be  taken  as 
a  whole  it  will  be  found  that  the  great  bulk  of  the  busi- 
ness is  done  through  jobbers  scattered  over  the 
United  States.  One  advantage  which  these  large  com- 
panies gain  by  "going  direct"  is  that  the  advertising 
which  they  do  on  a  large  scale  helps  the  company  di- 
rectly and  permanently. 

The  acquirement  of  retail  stores  by  the  American 
Tobacco  Company  was  the  outcome  of  a  policy  to  meet 
competition.  At  first  the  company  sold  to  retailers  with 
certain  restrictions.  For  example,  the  retailer  was  for- 
bidden to  handle  certain  competing  goods  like  cheap 
cigarettes.  He  was  also  forbidden  to  quote  his  own 
prices.  It  was  not  until  1901  that  the  American  To- 
bacco Company  began  to  fight  for  the  cigar  market. 
Up  to  this  time  they  had  left  this  trade  to  others.  Busi- 
ness policy  forced  the  company  to  gain  control  of  the 
Cuban  output,  but  they  found  the  independent  com- 
panies in  possession  of  the  market  for  cigars.  The 
trust  at  once  began  a  policy  of  marketing  its  own  prod- 
uct through  its  retail  shops  and  distributing  houses.  The 
subsidiary  company  through  which  the  selling  was  con- 
ducted was  the  United  Cigar  Stores  Company,  which 
to-day  has  over  seven  hundred  stores.  It  is  now  an 


84  BUSINESS  ORGANIZATION 

independent  company.  Although  its  stores  are  care- 
fully selected  as  to  location — a  corner  or  a  frequented 
business  section — nevertheless  many  important  sites  for 
this  trade  were  already  occupied  by  drug  stores.  To 
reach  these  centers  the  American  Tobacco  Company 
formqu  two  smaller  companies.  The  first  was  to  pro- 
vide drug  stores  with  cigars  and  fixtures  at  a  cheaper 
rate  than  they  could  be  obtained  from  competing  whole- 
sale companies.  This  was  the  National  Cigar  Stands 
Company.  The  second  subsidiary  company — the 
United  Cigar  Stands  Company — was  to  obtain  posses- 
sion of  the  small  candy  store,  the  newspaper  stand,  and 
other  minor  points  of  distribution.  Since  the  dissolu- 
tion of  the  American  Tobacco  combination  these  sub- 
sidiaries have  become  independent. 

The  chocolate  and  candy  market  is  reached  much 
after  the  same  method  as  that  of  the  tobacco  trade. 
The  manufacturers  make  use  of  their  own  retail  stores 
and  also  those  of  the  general  candy  trade.  Thus 
"Huyler's"  keeps  a  partial  control  over  all  its  products. 
It  has  some  forty  stores  of  its  own  located  in  the  larger 
cities;  but  where  it  must  go  outside  and  distribute 
through  the  general  trade,  the  company  only  sells  its 
goods  in  sealed  packages. 

Sometimes  large  concerns  keep  a  retail  shop  or  two 
going  for  the  purpose  of  advertising,  and  sell  the  bulk 
of  their  product  through  the  ordinary  channels  of  trade. 
Large  publishing  houses  often  carry  on  a  retail  trade  in 
New  York  and  other  large  cities ;  John  and  James  Dob- 
son  own  a  shop  in  New  York,  where  their  carpets  are 
kept  on  display  and  for  sale;  the  Gorham  Company  of 
Providence,  R.  I.,  maintains  a  retail  store  in  New  York 
City  for  the  sale  of  silver  and  bronze  ware. 

48.  Reasons  for  the  declining  importance  of  the  mid- 


MARKETING  OF  MANUFACTURED  GOODS      85 

dleman. — The  movement  of  the  manufacturer  toward 
emancipating  himself  from  the  control  of  the  middle- 
man is  bringing  several  important  changes  in  its  path. 
One  naturally  points  to  the  decreasing  importance  of 
the  jobber  and  wholesaler  in  the  distributing  business. 
This  man  who  once  usurped  the  title  of  merchant  prince 
is  gradually  giving  place  to  the  industrial  prince.  The 
agents  that  have  brought  this  about  are  advertising, 
traveling  salesmen,  quantity  buying  (the  complement 
of  mass  production) ,  financial  policy,  the  agent  and  the 
sub-agent  and  the  mail  order  system.  The  manufac- 
turer has  found  it  necessary  to  supplement  his  mass 
production  with  quantity  selling.  He  was  compelled  to 
relieve  a  system  of  continuous  factory  production  by 
means  of  a  steady  and  constant  absorption  of  the  prod- 
uct. The  increasing  capital  outlays  for  the  plant 
made  it  essential  that  its  value  should  not  be  put  in 
jeopardy  by  being  separated  from  the  source  of  that 
value,  i.  e.,  the  market.  The  manufacturer  furthermore 
was  under  the  pressure  of  the  same  competitive  system 
which  forced  consolidation  of  interests  in  the  productive 
field  and  which  now  persists  in  forcing  still  further  the 
economies  of  combination  by  demanding  a  like  con- 
solidation in  the  field  of  distribution. 

All  these  demands  are  met  by  the  manufacturer  by 
attempts  to  reach  the  market  as  directly  as  possible. 
By  knowing  and  studying  the  market  he  could  gauge 
the  production  of  his  mill.  By  advertising,  by  estab- 
lished trade  marks  and  trade  connections  he  secured  a 
firm  hold  upon  his  customer's  good  will,  an  asset  often 
more  valuable  than  his  patents.  In  passing  around  the 
jobber,  the  wholesaler  and  other  market  experts,  he  is 
in  a  better  position  to  ascertain  the  true  nature  of  the 
demand  for  his  goods.  A  jobber  by  placing  a  big  or- 


86  BUSINESS  ORGANIZATION 

der  with  the  factory,  in  one  year  may  induce  the  man- 
ager to  lay  out  large  sums  for  the  extensions  and  im- 
provements; the  next  year  the  jobber  may  demand  con- 
cessions which  if  not  met  will  result  in  his  placing  that 
year's  orders  with  a  rival  factory.  Such  uncertainty 
places  industrial  capital  of  this  kind  in  great  jeopardy. 
In  a  sense  the  way  for  this  re-organization  of  the  manu- 
facturer's selling  methods  was  prepared  for  him.  The 
retail  establishments  themselves  had  grown  to  large  di- 
mensions while  the  organization  of  transportation  and 
communication  and  storage  made  it  possible  to  place 
large  orders  without  the  aid  of  the  wholesaler.  Quan- 
tity selling  was  met  by  a  retail  market  capable  of 
quantity  buying.  The  benefits  of  this  direct  connection 
between  the  producer  and  large  retailer  are  divided  be- 
tween them.  The  manufacturer  establishes  a  jobber's 
list  and  where  the  retail  dealer  can  buy  in  quantities  he 
gets  the  advantage  of  the  wholesale  prices.  It  is  nat- 
ural that  the  jobber  should  make  a  struggle  to  maintain 
his  ancient  position  in  the  market.  He  is  putting  forth 
efforts  in  two  directions.  In  some  lines  the  wholesaler 
is  maintaining  a  favorable  advantage  over  the  retailer 
by  forcing  the  manufacturer  to  grant  him  more  and 
better  discounts.  This  is  often  done  by  powerful  asso- 
ciations of  jobbers  which  dictate  terms  to  the  manufac- 
turer. In  another  way  the  commission  men  are  protect- 
ing themselves  by  buying  into  the  manufacturing  busi- 
ness and  becoming  producers  themselves.  This  is  es- 
pecially noticeable  in  the  cotton  goods  business. 

The  effect  of  the  competitive  forces  was  first  made 
manifest  in  the  establishment  of  agencies  by  the  manu- 
facturers. These,  as  we  have  noticed,  were  often  sub- 
sidiary concerns.  Although  they  formed  a  necessary 
function  in  the  mechanism  of  direct  selling  yet  this  is 


MARKETING  OF  MANUFACTURED  GOODS      87 

not  the  sole  use  to  which  such  a  subsidiary  company 
may  be  put.  The  subsidiary  aspect  of  the  agency 
coupled  with  a  name  which  did  not  disclose  its  connec- 
tion with  the  parent  company,  gave  the  big  corporation 
an  opportunity  to  escape  taxation  by  arranging  that 
the  subsidiary  company  which  had  branches  in  different 
states  should  have  only  a  nominal  capitalization  and  in 
case  a  question  of  monopoly  should  arise,  the  subsidiary 
company  would  act  as  a  buffer  to  successful  investiga- 
tion on  the  part  of  the  government.  Again,  as  has 
been  pointed  out,  a  central  selling  agency  enables  a 
number  of  nominally  independent  concerns  to  market 
their  goods  jointly  or  it  enables  a  combination  of  firms, 
which  had  made  reputations  before  the  consolidation  to 
market  the  old  brands  as  before  without  the  usual  fear 
of  competition  or  loss  of  identity. 

The  marketing  of  manufactured  goods,  although 
lacking  the  security  and  economy  given  by  the  organized 
exchange,  is  showing  the  effects  of  the  universal  ten- 
dency in  the  business  world,  the  elimination  of  un- 
necessary factors  and  the  greater  economizing  of  efforts 
and  costs  through  better  organization. 


CHAPTER  VI 

ORGANIZATION  OF  EXPORT  BUSINESS 

49.  Necessity  for  seeking  foreign  markets. — Busi- 
ness problems  in  the  United  States  have  usually  been 
limited  to  those  connected  with  home  trade.  But  with 
the  rapid  growth  of  our  manufacturing  surplus  Ameri- 
can business  men  are  becoming  interested  in  foreign 
markets.  Most  American  manufacturers  know  very 
little  of  this  kind  of  trade  and  much  provincialism  is 
displayed  by  those  who  attempt  to  enter  a  distant  for- 
eign market  for  the  first  time.  On  the  other  hand, 
some  of  our  exporting  houses  have  built  up  organiza- 
tions that  compare  favorably  with  those  of  England  or 
other  commercial  countries  of  Europe.  Such  enter- 
prise and  organization  as  are  displayed  by  the  American 
companies  handling  sewing  machines,  typewriters,  talk- 
ing machines  and  cash  registers  may  well  serve  as  ex- 
amples, not  only  to  other  American  exporters,  but  to 
the  rest  of  the  world  also.  The  Eastman  Kodak  Com- 
pany has  not  only  invaded  European  markets  as  a  sell- 
ing agency,  but  by  adroit  manipulation  of  companies 
established  in  England,  France  and  Germany,  has  made 
large  profits  from  its  financial  arrangements. 

The  progress  of  our  methods  in  winning  the  favor 
of  foreign  customers  is  illustrated  by  the  agricultural 
machinery  business.  The  early  method  of  introduction 
of  these  goods  was  by  means  of  a  public  test  during 
some  exposition  or  agricultural  show  in  London,  Paris, 
Berlin,  Vienna,  etc.  Two  of  these  tests  will  serve  as 

88 


ORGANIZATION  OF  EXPORT  BUSINESS       89 

examples  of  all  the  earlier  methods.  At  one  competi- 
tion near  Paris  in  1879  three  reapers  were  set  to  work 
in  fields  of  equal  size.  The  French  reaper  led  off  and 
finished  in  seventy-two  minutes.  The  English  reaper 
followed  and  finished  in  sixty-six  minutes.  Then  came 
the  American  machine  which  completed  its  stretch  of 
grain  in  one-third  the  time  of  the  English  reaper.  An- 
other of  these  tournaments,  which  did  much  to  advertise 
the  United  States,  took  place  in  England  in  1880.  The 
American  reaper  sent  over  by  the  McCormick  Com- 
pany met  with  mishaps  at  sea  that  injured  its  appear- 
ance and  left  it  rusty  and  unfit  for  work.  Cyrus  H. 
McCormick,  Jr.,  who  had  it  in  charge,  determined  to 
turn  its  forlorn  aspect  into  an  asset.  Instead  of  im- 
proving the  machine's  appearance,  all  the  paint  was 
scraped  off  and  the  smallest  and  scrubbiest  pair  of 
horses  procurable  were  attached.  However,  the  experts 
did  not  fail  to  oil  and  adjust  in  a  proper  way  all  the 
running  gear.  "The  next  day"  as  Mr.  Casson  relates 
the  story,  "five  or  six  foreign  reapers  were  on  hand, 
each  glittering  with  newness  and  drawn  by  a  stately 
team  of  big  Norman  horses.  The  shabby  American 
reaper  arrived  at  last  and  met  a  shout  of  ridicule  as  it 
rolled  into  its  place.  But  in  the  race  'Old  Rusty'  as 
the  spectators  called  it,  swept  ahead  of  the  others  as 
though  it  were  an  enchanted  chariot,  winning  the  gold 
medal  and  an  enviable  prestige  among  British  farmers." 
50.  Modern  methods  of  reaching  foreign  markets.— 
To-day  all  this  is  changed  and  the  American  manu- 
facturer of  farm  machinery  disdains  to  consider  exposi- 
tions and  trials,  and  if  any  attention  is  given  to  them  it 
is  by  agreement  among  the  various  firms,  and  any  ac- 
tion determined  upon  is  decided  by  a  flip  of  the  coin. 
The  American  binder  and  reaper  dominates  the  foreign 


90  BUSINESS  ORGANIZATION 

market.  The  shipment  of  these  goods  is  now  in  cargo 
lots  and  the  manufacturers  have  organized  the  agricul- 
tural districts  of  Europe  along  the  same  effective  lines 
that  obtain  in  the  United  States.  Their  general  agent 
and  their  sub-agents,  their  block  men  and  their  mechani- 
cal experts,  are  to  be  found  eagerly  and  intelligently 
pushing  for  new  business,  developing  the  old,  and 
handling  both  with  tact  and  with  satisfaction. 

How  recent  is  the  entrance  into  the  foreign  trade  by 
some  of  our  largest  corporations,  is  brought  to  mind  by 
the  constant  newspaper  reports  of  the  "trade  agree- 
ments" regarding  steel  imports  and  exports  between  the 
United  States  Steel  Corporation  and  some  European 
iron  and  steel  company.  It  is  only  within  the  last  five 
years  that  the  greatest  iron  and  steel  concern  in  the 
world  has  taken  an  active  interest  in  the  foreign  market 
that  would  in  any  way  compare  with  the  farm  machin- 
ery companies. 

The  experiences  of  such  well-known  firms  as  those 
mentioned  and  others,  such  as  the  large  meat-packing 
companies,  certain  steam  pump,  steam-heating  and  elec- 
trical machine  manufacturers,  are  not  the  only  experi- 
ences of  American  attempts  to  establish  an  export  busi- 
ness. But  few  American  manufacturers  have  formed 
a  correct  estimate  of  the  difficulties  to  be  overcome  in 
invading  a  foreign  market.  It  should  first  be  realized 
that  Europe's  share  in  international  trade  is  and  always 
has  been  immensely  greater  than  the  share  of  the  United 
States.  It  is  for  American  merchants  to  fight  for  a 
position  already  in  the  hands  of  competitors,  and — which 
is  no  less  important — to  meet  in  the  open  field  new  and 
fast  developing  commercial  nations.  Russian  shops  re- 
cently secured  one-half  of  the  contracts  awarded  by  the 
Italian  government  for  freight  and  passenger  cars,  and 


ORGANIZATION  OF  EXPORT  BUSINESS      91 

this,  too,  in  competition  with  the  home  and  German 
bidders.  Spain  is  selling  in  the  Indian  market,  cotton 
undershirts  made  of  American  cotton,  while  Japan 
stands  ready  to  monopolize  the  eastern  markets  the  mo- 
ment the  commercial  spirit  makes  itself  manifest  in 
China  and  Eastern  Asia  generally. 

51.  Direct  relations  with  foreign  buyers. — It  is  the 
opinion  of  successful  export  houses  that  it  is  not  difficult 
to  obtain  sample  or  trial  orders  from  foreign  countries. 
The  real  difficulty  is  in  holding  the  relations  once  es- 
tablished. The  method  by  which  a  manufacturer 
should  approach  the  subject  of  exporting  is  outlined  by 
Mr.  B.  Olney  Hough,  editor  of  the  American  Exporter, 
as  follows: 

(1)  Secure  a  "paper  acquaintance"  with  foreign  countries, 
capitals,  seaports  and  commercial  centers  as  a  foundation  for 
a  broad  and  thorough  cultivation  of  export  markets.     These 
may  be  secured  from  a  good  atlas,  map  and  a  gazetteer,  and 
incidentally  with  the  aid  of  geographies,  guide  books,  books  of 
travel,    and   even    steamship   folders.     By    such    study    certain 
physical  limitations   will  be   suggested,  but  the   manufacturer 
should  always  be  open  to  conviction.     The  invasion  of  Europe 
by  American-made  boots  and  shoes  is  an  illustration  of  a  suc- 
cessful venture  which  was  undertaken  in  the  face  of  very  dis- 
couraging competitive   conditions.     Last  year  the   exports   of 
this  line  of  goods  amounted  to  over  three  million  dollars. 

(2)  Advice  should  be  sought  from  other  manufacturers  in 
the    same    line    of   business    and   from    professional    exporters. 
These  men  have  had  practical  experience  in  many  lines  and  in 
many  countries.     They  have  met  the  foreigner  both  at  home 
and  abroad  and  can  give  valuable  information  about  the  chief 
markets  of  the  world. 

(3)  Having  acquired  a  knowledge  of  the  world's  markets  and 
of   what   other  manufacturers   are    doing    in    exporting   simi- 


92  BUSINESS  ORGANIZATION 

lar  goods,  the  next  problem  is :  In  what  markets  will  his  goods 
have  the  best  opportunity?  He  may  gain  this  information  in 
three  ways:  (a)  by  sending  a  traveling  salesman,  (b)  by  adver- 
tising, (c)  by  direct  correspondence  with  possible  foreign  cus- 
tomers. 

( 4 )  Names  of  merchants  and  importers  in  different  cities  may 
be  obtained  from  a  variety  of  sources.  For  example : 

(a)  Directories  are  available — city,  country  and  world  direc- 
tories.    No   foreign   country  has   carried   directory-making  to 
such  perfection  as  the  United  States,  and  in  foreign  classified 
trade  lists  many  important  merchants  are  likely  to  be  omitted. 
They  may  appear,  however,  in  the  book  under  another  caption. 

(b)  Lists  of  dealers  in  a  particular  line  of  business  may  be 
purchased  from  firms  who  make  the  compiling  of  such  lists  a 
business,  but  lists  of  addresses  more  than  a  year  or  two  old 
should  be  discarded. 

(c)  Men  who  have  traveled  or  lived  in  foreign  markets  can 
often  supply   information  about  leading  merchants  and  local 
trade  papers.     The  publishers  of  these  sheets  are  often  willing 
to  supply  names  of  local  dealers. 

(d)  "Rating  books"  are  seldom  found  outside  of  the  United 
States.     Only  one  English  publication  seems  to  enjoy  the  gen- 
eral confidence  of  exporters.     This  book  is  sold  only  to  bankers 
and  is  limited  in  its  scope. 

(e)  New  York  foreign  bankers  can  supply  valuable  credit 
information  and  this  is  freely  given  after  proper  introduction. 

(f)  The  various  commercial  agencies  in  the  United  States, 
although  their  charges  are  high,  are  able  to  give  information 
leading  to  knowledge  of  a  firm's  financial  position. 

(g)  The  local  "information  bureaux"  at  the  homes  of  the 
foreign  correspondents  can  often  direct  attention  to  the  com- 
parative importance  of  certain  foreign  merchants. 

(h)  Most  of  the  larger  importers  in  all  of  the  world's  princi- 
pal markets  have  certain  American  connections  established  from 
whom  references  are  quickly  obtained. 

(i)   The  American  consuls  in  foreign  lands,  although  they 


ORGANIZATION  OF  EXPORT  BUSINESS         93 

are  neither  drummers  for  American  goods  nor  reporting  agen- 
cies, may  nevertheless  be  in  a  position  to  advise  a  manufacturer 
in  the  introduction  of  his  goods. 

(j)  In  a  restricted  sense  the  Bureau  of  American  Republics 
is  an  institution  for  supplying  trade  information  about  differ- 
ent American  countries. 

(k)  The  United  States  Department  of  Commerce,  through 
its  consular  and  other  reports,  gives  timely  items  concerning 
foreign  countries  the  world  over. 

In  considering  the  above  sources  of  information  it  is 
well  to  bear  in  mind  their  limitations  and  the  fact  that 
only  after  long  study  can  information  so  gained  be  util- 
ized. One  feature  found  in  some  parts  of  the  world, 
especially  in  the  Far  East,  most  parts  of  Central  and 
South  America,  and  very  frequently  in  Australia  and 
in  South  Africa,  is  that  the  greater  part  of  the  import 
business  is  handled  by  general  importers.  They  are 
spoken  of  in  the  trade  as  "merchant"  or  "indent"  houses.1 
In  the  parts  of  the  world  we  have  just  spoken  of,  the 
smaller  dealers  do  very  little  importing  on  their  own  ac- 
count, but  fill  their  orders  through  the  general  import- 
ers. This  is  an  important  fact  to  be  borne  in  mind. 
The  manufacturer  attempting  to  make  business  con- 
nections in  China  or  Central  America  would  not  make 
progress  by  obtaining  lists  of  names  of  the  actual  deal- 
ers in  his  line  of  merchandise.  The  men  to  seek  are  the 
general  importers  who  are  likely  to  be  interested  in  his 
goods. 

52.  The  importance  of  clearness  in  foreign  corre- 
spondence.— The  first  essential  in  foreign  correspond- 

iA  "Merchant  house"  is  a  concern  that  buys  goods  in  quantity  on  its 
own  initiative  and  then  seeks  to  dispose  of  them  to  the  trade.  An  "In- 
dent house"  takes  orders  for  certain  goods  from  dealers  on  sample  or 
otherwise,  then  imports  for  the  benefit  of  its  customers.— B.  O.  Hough, 
"  Elementary  Lessons  in  Exporting,"  page  6. 


94  BUSINESS  ORGANIZATION 

ence  is  simplicity  of  style.  The  goods  should  be  de- 
scribed and  explained  in  a  way  that  will  be  understood 
by  a  person  completely  ignorant  of  them.  For  example, 
a  manufacturer  of  children's  stockings  quotes  a  cer- 
tain grade  and  size  at  $1.05  per  dozen,  with  a  "rise 
and  fall  of  5  cents"  for  every  half  size  larger  or 
smaller.  Outside  the  United  States  only  a  few  deal- 
ers would  understand  this.  Prices  are  seldom  quoted 
by  European  manufacturers.  The  metric  sizes  rather 
than  the  English  are  customary  in  most  European  mar- 
kets. All  names  of  goods  and  names  of  parts  should 
be  examined  before  using  the  terms  in  a  letter,  since 
it  may  be  the  case  that  the  American  name  is  purely  a 
local  one  and  not  generally  understood.  This  applies  to 
catalogues  especially.  Clearness  and  simplicity  from 
the  foreigner's  point  of  view  is  to  be  aimed  at.  Help 
may  be  had  in  doing  this  by  a  study  of  the  literature 
sent  out  by  foreign  manufacturers  along  the  same  lines. 
Mr.  Hough  estimates  that  probably  50  per  cent  of  our 
machinery  catalogues,  and  even  more  than  that  of  our 
special  lines,  are  almost  incomprehensible  to  any  read- 
ers outside  the  special  trade  to  which  they  apply.  He 
cites  the  following  instance:  A  trained  mechanical  en- 
gineer, holding  a  diploma  from  one  of  our  first  Ameri- 
can technical  schools,  together  with  a  thoroughly  com- 
petent American  agricultural  engineer,  jointly  studied 
for  two  days  over  the  directions  for  setting  up  an 
American  hay-press  six  thousand  miles  from  the  fac- 
tory, and  finally  gave  up  the  problem  in  disgust.  On 
appeal  to  the  manufacturers,  a  sarcastic  letter  was  re- 
ceived, which  gave  no  advice  at  all,  necessitated  another 
letter  and  a  further  delay  of  six  weeks  before  the  ma- 
chine could  be  made  to  work. 

Another  caution  to  be  observed  is  in  connection  with 


ORGANIZATION  OF  EXPORT  BUSINESS       95 

the  introduction  by  catalogue  jf  new  goods.  If  cata- 
logues are  written  from  the  American  point  of  view, 
they  will  be  as  so  much  "Greek"  to  foreign  readers. 
The  export  of  cement  block  machines  is  an  example. 
The  catalogue  goes  into  great  technical  detail  and  reads 
as  if  the  author  thought  that  the  conditions  in  all  coun- 
tries were  identical  with  our  own.  As  a  consequence, 
a  large  percentage  of  this  foreign  correspondence  is 
without  effect. 

The  importance  of  attaching  a  distinctive  mark  of 
quality  should  not  be  overlooked  in  foreign  trade. 
These  customers  show  far  more  respect  for  names  and 
marks  than  Americans.  A  trade-mark  once  established 
needs  little  pushing  thereafter.  For  a  similar  reason  a 
personal  letter  to  a  foreigner  is  always  more  effective 
than  a  circular  letter.  Then,  too,  the  best  results  are 
obtained  when  letters  or  catalogues  are  written  in  the 
language  which  the  recipient  uses.  Imitation  typewrit- 
ten letters  with  names  and  addresses  inserted  are 
so  perfect  nowadays  that  it  is  difficult  to  dis- 
tinguish them  as  "process"  letters.  These  form  let- 
ters can  be  put  into  several  languages  at  a  small  charge. 
In  the  case  of  catalogues  it  is  well  for  the  American 
exporter  to  use  at  least  one  other  language  than  the 
English,  preferably  the  Spanish.  Furthermore,  it  is 
not  necessary  to  have  the  foreign  edition  an  exact  dupli- 
cate of  the  domestic  edition.  It  can  be  shortened  by 
leaving  out  all  articles  that  have  a  home  demand  alone. 
Some  large  firms  have  two  distinct  catalogues.  One  is 
large  and  complete  and  is  meant  for  important  and 
regular  customers,  the  other  is  a  cheap  booklet  for  gen- 
eral circular  use. 

The  manufacturer  should  be  careful  to  secure  a  com- 
petent translator  when  addressing  correspondents  in  a 


96  BUSINESS  ORGANIZATION 

foreign  language.  Many  men  make  this  work  their 
specialty  in  the  large  export  centers,  and  the  cost  of 
their  services  is  not  high.  The  following  list  indicates 
the  country  and  the  language  to  be  used  in  correspond- 
ence with  foreign  houses.  Spanish  literature  can  go 
to  South  America,  Cuba,  Porto  Rico,  the  Philippines, 
Spanish  and  Portugese  colonies,  such  as  the  Canaries 
and  the  Azores;  French  literature  can  be  used  in 
France,  Belgium,  Italy,  Greece,  Turkey,  Egypt,  Al- 
geria, Portugal  and  Brazil;  German  literature  in  Ger- 
many, Austria-Hungary,  Switzerland,  Scandinavia, 
Russia,  Roumania  and  Bulgaria;  and  English  and 
Spanish  literature  combined  will  cover  the  rest  of  the 
world. 

53.  Quoting  of  prices. — How  prices  should  be  quoted 
in  the  export  trade  is  a  debatable  question.  There  is  a 
general  agreement,  however,  that  the  manufacturer 
should  make  a  study  of  his  particular  line  of  trade  in 
order  to  discover  whether  it  is  wise  or  not  to  quote  prices 
in  his  catalogue.  It  is  well  to  remember  that  the  one 
price  system  in  vogue  in  America  and  England  is  not  so 
highly  esteemed  in  other  countries.  A  graduated  scale 
of  prices,  therefore,  may  meet  several  contingencies  that 
arise  in  the  export  trade.  There  are  (1)  the  prices  of 
the  wholesaler  and  retailer;  (2)  the  possible  progres- 
sion of  trade  from  a  retail  to  a  wholesale  business;  (3) 
the  forced  advancement  of  prices;  (4)  the  practical 
question  of  "taking  care"  of  export  commission  houses, 
which  is  more  easily  solved  if  prices  to  the  buyer  are 
elastic. 

The  revision  of  prices  is  considered  very  bad  business 
policy  unless  it  is  done  with  a  great  deal  of  care. 
"Nothing,"  says  one  authority,  "is  surer  discourage- 
ment to  foreign  buyers  than  to  tender  orders  on  the 


ORGANIZATION  OF  EXPORT  BUSINESS        97 

basis  of  manufacturer's  quotations  and  have  their  orders 
returned  to  them  with  the  statement  that  prices  have  ad- 
vanced. Tying  a  string  to  a  quotation  in  the  shape  of 
the  provision  that  all  prices  are  'subject  to  change  with- 
out notice'  is  very  far  from  meeting  the  requirements 
of  export  business,  where  buyers  are  located  sometimes 
four  and  six  weeks'  mail  time  distant." 

In  this  connection  it  may  be  well  to  mention  that 
prices  quoted  in  dollars  should  include  the  proviso  that 
exchange  is  for  the  account  of  the  buyer,  or  that  in- 
voices will  be  drawn  in  sterling  (or  other  foreign  cur- 
rency), conversion  to  be  made  "at  day's  rate  of  ex- 
change when  making  shipment,"  and  in  case  of  ship- 
ments to  Latin  American  countries  where  "dol- 
lars" are  also  used,  quotations  should  specifically  read 
"gold"  or  "United  States  currency."1 

Two  other  precautions  to  be  particularly  observed 
have  to  do  with  quotations  that  specify  conditions  of 
shipment,  and  underpaid  postage.  The  abbreviations 
C.  I.  F.  and  F.  O.  B.  refer  to  "cost,  insurance,  freight" 
and  "free  on  board"  respectively.  The  first  is  added  to 
the  F.  O.  B.  ocean  steamer,  but  it  should  be  quoted  so 
that  C.  I.  F.  includes  the  customer's  nearest  port. 

Manufacturers  in  the  interior  of  the  United  States 
would  avoid  much  friction  if  they  observed  the  differ- 
ence between  the  terms  F.  O.  B.  New  York  and 
"Freight  paid  to  New  York."  The  foreign  correspond- 
ent assumes  that  F.  O.  B.  excludes  all  charges  before  the 
goods  are  put  on  board  ship.  The  transfer  charges 
from  the  railway  station  to  the  ship  are  often  very  high 
and  the  exporter  should  specifically  state  that  these  are 
to  be  paid  for  extra  if  he  wishes  the  charge  to  be  in- 
cluded in  the  foreign  merchant's  bill.  In  this  case  the 

i"  Elementary  Lessons  in  Exporting,"   B.  O.   Hough,  page  20. 
II— 7 


98  BUSINESS  ORGANIZATION 

term  "Freight  paid  to  New  York"  is  the  proper  one  to 
use  and  not  F.  O.  B.  New  York. 

It  is  difficult  for  most  Americans  to  realize  that  for- 
eign business  men  are  peculiarly  sensitive  to  small  out- 
lays imposed  upon  them,  such  as  extra  expense  for  mail 
matter  delivered  to  them  with  underpaid  postage.  Per- 
haps there  is  no  surer  way  of  never  getting  an  order 
from  a  foreign  firm  than  to  be  careless  in  thus  sending 
out  letters  or  catalogues.  Much  of  this  is  due  to  careless 
stamping  by  the  office  boy  or  stenographer.  Some 
firms  avoid  this  by  writing  a  large  letter  "F"  in  the  right 
hand  corner  of  the  envelope.  This  calls  attention  to  its 
character  when  going  through  the  hands  of  the  mailing 
clerk. 

In  addressing  foreigners,  it  should  be  remembered 
that  they  are  more  accustomed  to  formality  in  corre- 
spondence than  Americans.  Their  practice  should  be 
respected.  It  may  seem  cumbersome  to  substitute  the 
formal  French  and  German  termination  of  a  letter,  "ac- 
cept, gentlemen,  the  assurance  of  our  profound  esteem,'* 
for  the  terse  "yours  truly,"  but  it  is  business  in  the  one 
case  as  much  as  in  the  other.  The  Frenchman  likes 
formality,  the  American  prefers  brevity. 

The  following  simple  vocabularies  of  a  few  expres- 
sions used  in  foreign  trade  names  will  aid  the  exporter 
in  filing  and  indexing  names  or  in  addressing  foreign 
customers.1 

GERMAN. 

Sohn    ( Singular)    Son 

Sohne  (Plural)    Sons 

Bruder    ( Singular)    Brother 

i  Hough,  "  Elementary  Lessons  in  Exporting,"  page  25. 


ORGANIZATION  OF  EXPORT  BUSINESS         99 

Briider  or  Gebriider  (Plural)   Brothers 

Aktien  Gesellschaft  (abbrebiated  A.  G.) 

Joint  Stock  Company 

Handelsgesellschaf t   Trading  Company 


FRENCH. 

Frere    ( Singular)    Brother 

Freres  Plural)    Brothers 

Fils  (both  Singular  and  Plural) Son  or  Sons 

Societe  Anonyme  (abbreviated  Soc.  Anon.)  .... 

Joint  Stock  Company 

Compagnie   (abbreviated  Cie)    Company 

SPANISH. 

Hijo  ( Singular)    Son 

Hijos  (Plural) Sons 

Hermano   (Singular)   abbreviated  hno Brother 

Hermanos  (Plural)  abbreviated  hnos Brothers 

Sociedad  Anonima  (abbreviated  S.  A.)    

Joint  Stock  Company 

Compariia  (abbreviated  Cia)   Company 

SWEDISH. 

Son   ( Singular)    Son 

Soner  (Plural) Sons 

Broderna    Brothers 

Aktiebolaget  (abbreviated  Akt.  or  A.  B.)    .... 

Joint  Stock  Company 

Kompaniet   Company 


100  BUSINESS  ORGANIZATION 

ITALIAN. 

Figlio   ( Singular) ....'-  Son 

Figli  (Plural) Sons 

Fratello    ( Singular)    Brother 

Fratelli  (Plural)  abbreviated  Flli Brothers 

Societa  Anonima  (abbreviated  S.  A.)    

, Joint  Stock  Company 

Compagnia   (abbreviated  C.)    Company 

54.  Export  commission  houses. — The  prime  economic 
function  of  the  commission  man  is  to  put  goods  where 
they  are  most  wanted  at  the  most  suitable  times.  The 
changing  organization  of  the  other  parts  of  the  indus- 
trial system  outside  the  field  of  exchange  has  varied  the 
duties  of  the  commission  man  from  time  to  time.  He 
has  geiierally  usurped  those  parts  of  the  distributive 
system  which  the  producer  or  consumer  deemed  too  far 
beyond  their  own  time  and  energy  to  be  considered. 
Standing  thus  between  the  producer  and  consumer,  the 
commission  man's  business  partakes  of  the  nature  of  an 
agency.  He  sells  for  one  and  buys  for  the  other.  If 
his  interests  are  chiefly  centered  in  finding  a  market  for 
the  manufacturer,  he  is  called  a  manufacturer's  agent; 
if  his  interests  are  devoted  to  the  finding  of  goods  for 
a  consumer  or  another  firm  in  a  foreign  country,  he  is 
termed  an  export  commission  man.  The  importance  of 
the  commission  house  depends  largely  upon  the  duties 
which  it  performs  as  an  intermediary.  As  has  been 
mentioned  above,  both  the  producer  and  consumer  are 
continually  encroaching  upon  these  functions  as  they 
find  it  more  economical  to  do  so.  To-day,  however,  the 
export  commission  house  may  be  defined  as  a  buying 
agent  in  America  for  foreign  merchants.  It  combines 


ORGANIZATION  OF  EXPORT  BUSINESS     ' 

with  this  function  the  business  of  shipping  the  goods 
and  of  financing  such  orders — that  is,  paying  the  manu- 
facturer out  of  its  own  resources  and  in  turn  collecting 
from  the  foreign  merchant.  These  export  houses  sel- 
dom buy  any  goods  until  they  have  received  orders  for 
the  goods  from  their  foreign  customers.  With  the  de- 
velopment of  the  export  business  there  is  a  tendency 
for  these  houses  to  extend  their  functions  by  going 
into  the  foreign  field  for  the  purpose  of  inducing  mer- 
chants to  buy  through  them.  In  such  cases  the  export 
house  either  sends  its  own  traveling  salesman  or  estab- 
lishes its  own  branch  offices  in  foreign  markets,  often 
opening  up  a  sample  or  sales  room.  In  other  directions 
the  functions  of  the  commission  house  have  been  modi- 
fied. Some  manufacturers  avoid  the  export  commission 
agent  by  sending  their  own  representatives  abroad; 
others  operate  through  agencies  which  take  a  limited 
number  of  manufacturers  usually  in  the  same  line  of 
trade.  These  agents  act  for  their  principals  upon  a  sal- 
ary or  a  commission  basis,  or  the  two  combined. 

The  greatest  encroachment  upon  the  functions  of  the 
commission  house,  however,  has  been  from  the  direction 
of  the  big  foreign  concerns  which  take  large  quantities 
of  American  goods.  Branch  offices  are  maintained  in 
New  York  and  other  market  centers,  and  through  them 
all  orders  for  American  goods  are  executed.  This 
movement  toward  personal  representation  has  been  very 
marked  of  recent  years  and  illustrates  very  clearly  the 
tendency  manifest  in  all  departments  of  industry,  to 
combine  as  many  activities  as  possible  consistent  with 
economy  and  efficiency  under  a  central  control. 

In  treating  of  the  export  commission  house  as  gener- 
ally accepted  by  the  trade  and  as  defined  above,  it  is  well 
to  distinguish  between  those  who  confine  their  opera- 


102  BUSINESS  ORGANIZATION 

tions  to  certain  parts  of  the  world  and  those  who  do  not 
so  limit  their  operations.  Each  of  these  classes  contain 
some  houses  which  do  a  special  line  of  business  and  oth- 
ers which  receive  orders  for  any  sort  of  American 
goods,  from  any  foreign  house  of  assured  standing. 

We  have  spoken  from  the  American  point  of  view 
and  have  generally  referred  to  New  York  City  as  the 
type  of  a  market  center;  but  it  should  not  be  supposed 
that  export  commission  houses  are  not  found  in  other 
countries.  In  fact,  London  is  the  real  home  of  the 
world's  commission  houses.  Here  are  found  five  times 
as  many  as  in  New  York  City.  All  the  big  continental 
market  cities,  such  as  Hamburg,  Rotterdam,  Antwerp, 
are  each  as  well  supplied  as  is  New  York  City,  which 
has  about  six  hundred  export  commission  houses. 

There  is  little  in  the  modus  operandi  of  the  export 
commission  house  that  is  difficult  to  understand.  They 
do  business  only  with  foreign  houses  whom  they  know, 
and,  as  a  rule,  ship  goods  subject  to  draft  attached  to 
documents  or  against  confirmed  credits.  In  some  cases 
where  the  export  house  is  also  an  import  house,  the  ex- 
change of  commodities  permits  the  commission  firm  to 
arrange  the  financial  settlement  in  a  different  manner. 

The  advantages,  both  to  the  buyer  and  the  seller, 
which  are  offered  by  this  method  of  distributing  goods 
may  be  briefly  stated.  The  advantages  to  the  foreign 
customer  in  dealing  through  a  commission  house  may  be 
summed  up  as  follows:  (1)  He  can  forward  all  or- 
ders under  one  cover  instead  of  dealing  with  a  large 
number  of  separate  manufacturing  concerns;  (2)  he 
receives  his  shipments  on  one  bill  of  lading;  (3)  his  pay- 
ments are  to  one  person  and  not  to  many;  (4)  a  foreign 
firm  may  get  longer  credit  extensions  from  a  commis- 
sion house,  that  is,  the  exporter  being  acquainted  with 


ORGANIZATION  OF  EXPORT  BUSINESS      103 

the  trade  and  having  a  wider  connection  among  foreign 
banks,  would  not  hesitate  to  grant  longer  term  drafts. 

The  advantages  to  be  derived  by  a  manufacturer  may 
be  similarly  summarized:  (1)  The  export  house  car- 
ries out  the  shipping  details;  (2)  the  export  firm  is  a 
home  concern  which  can  be  easily  investigated  if  its 
financial  strength  or  commercial  standing  is  at  all  in 
question;  (3)  collections  can  be  enforced  according  to 
American  laws;  (4)  the  commission  firm  is  in  a  position 
to  secure  better  ocean  freight  rates,  or  in  any  event  to 
avoid  the  excessive  charges  incident  to  small  shipments 
by  individual  manufacturers. 

55.  Cautions  to  be  observed  in  dealing  with  commis- 
sion houses. — Certain  cautions  in  dealing  with  commis- 
sion houses  should  be  observed,  for  there  are  not  only 
untrustworthy  firms,  but  the  character  of  foreign  trade 
itself  breeds  sharp  practices  and  offers  many  pitfalls 
to  the  ignorant  and  the  unwary. 

It  should  be  recalled  here  that  a  commission  house 
does  not  originate  orders  and  offers  'only  a  few  facili- 
ties for  introducing  a  new  firm's  goods  into  foreign 
lands,  also  that  these  export  firms  handle  a  great  variety 
of  goods,  in  fact  everything  for  which  a  profitable  mar- 
ket may  be  found.  The  representatives  of  the  commis- 
sion house  must  of  necessity  scatter  their  efforts  and  can 
not  know  the  "ins  and  outs"  of  every  business.  Among 
those  export  houses  that  have  foreign  branches  in  many 
markets  there  will  be  found  great  differences  in  ability 
to  handle  special  lines  of  goods.  For  example,  a  large 
export  house  has  its  own  branches  in  Shanghai,  Buenos 
Ayres  and  Sydney.  The  Shanghai  house  deals  in  sta- 
ples like  cotton  piece  goods  and  wire  nails;  the  house  in 
Buenos  Ayres  devotes  itself  entirely  to  engineering 
lines  of  goods  for  constructional  work,  while  the  Sydney 


104  BUSINESS  ORGANIZATION 

branch  handles  miscellaneous  lines,  such  as  hardware, 
boots  and  shoes.  While  this  concern  would  not  refuse 
to  handle  the  goods  of  a  boot  and  shoe  manufacturer 
through  its  Buenos  Ayres  establishment,  a  manufac- 
turer could  undoubtedly  find  a  rival  commission  house 
whose  standing  and  influence  in  the  same  market  would 
be  much  greater  in  the  boot  and  shoe  business.  A  man- 
ufacturer should  satisfy  himself  first  as  to  the  business 
which  a  commission  house  is  doing  in  a  certain  market; 
and,  second,  what  the  possibilities  are  of  introducing 
his  wares  satisfactorily.  It  is  not  enough  to  know  that 
the  New  York  house  has  a  big  reputation ;  this  may  have 
been  gained  in  lines  of  no  interest  to  the  manufacturer 
in  question. 

Furthermore,  in  this  connection  an  export  house  that 
solicits  the  "exclusive  agency"  of  a  manufacturer  should 
be  judged  by  the  facilities  it  has  in  different  markets 
for  handling  this  particular  ware,  and  not  by  its  claims 
to  a  world-wide  influence  and  connections.  Many 
houses  will  solicit  an  exclusive  agency  for  the  whole 
world.  No  wise  manufacturer  will  expect  to  get  sat- 
isfactory returns  if  he  grants  it.  No  commission  house 
can  do  justice  to  a  line  of  goods  covering  so  broad  a 
field.  Not  only  should  a  manufacturer  be  on  his  guard 
against  extravagant  propositions,  but  also  for  downright 
misrepresentations  of  marketing  facilities.  Letter 
heads  are  cheap,  and  vague  representations  suggest 
great  possibilities,  but  by  never  giving  definite  refer- 
ences, or  locations  of  their  "numerous  branches  scattered 
over  the  world,"  they  are  easily  composed.  Every  such 
solicitation  and  representation  or  claim  should  be  thor- 
oughly investigated  by  the  manufacturer. 

56.  Evil  of  substitution. — Perhaps  the  oldest  evil  con- 
nected with  the  export  commission  business  is  the  prac- 


ORGANIZATION  OF  EXPORT  BUSINESS     105 

tice  of  substitution.  The  commission  house  receives  an 
order  from  a  foreign  firm.  Instructions  are  enclosed 
showing  from  what  American  manufacturer  the  goods 
are  to  be  procured.  Instead  of  filling  the  order  with 
the  goods,  the  commission  house  selects  another  manu- 
facturer of  similar  goods  and  ships  a  substitute.  This 
is  done  because  the  commission  house  can  probably  get 
special  terms  from  the  manufacturer.  The  cure  for 
this  practice  rests  with  the  principals  in  the  transaction. 
If  a  foreign  house  should  send  duplicate  orders  to  the 
manufacturer  at  the  same  time  it  orders  through  the 
export  firm,  a  sufficient  check  would  be  imposed  against 
this  abuse.  Manufacturers  should  urge  all  foreign  cus- 
tomers to  do  this. 

57.  Bonus. — Competition  among  commission  houses 
has  given  rise  to  another  abuse.     Business  for  foreign 
clients  is  done  on  a  2^  per  cent  commission  basis. 
Commission  men  claim  that  this  is  too  small.     They 
therefore    supplement    the    buyer's    commission    by    a 
"bonus"  from  the  selling  manufacturer.     This  division 
of  the  expense  between  buyer  and  seller  would  assume  a 
different  ethical  aspect  if  it  were  surrounded  by  differ- 
ent conditions.     The  commission  house  solicits  private 
discounts    and   commissions    from   the   manufacturer. 
This  the  export  house  appropriates  to  itself.    Sometimes 
the  case  is  reversed  and  the  manufacturer  offers  special 
discounts  in  return  for  the  export  firm's  good  will. 
These  facts  in  themselves  are  not  unjustifiable,  but  they 
have  another  appearance  when  taken  in  connection  with 
the  claims  of  the  export  commission  house  that  all  dis- 
counts, cash,  selling  and  every  other  form  of  rebate  shall 
go  to  the  benefit  of  the  foreign  customer  upon  the  pay- 
ment of  the  stated  2%  per  cent,  or  less,  commission. 

58.  Foreign  sales  arrangements. — The  export  com- 


106  BUSINESS  ORGANIZATION 

mission  house  is  really  the  agent  for  the  foreign  buyer 
in  America.  The  American  manufacturer  seldom 
trusts  his  goods  to  agents  located  in  foreign  markets. 
He  does,  however,  work  through  the  export  commission 
house.  This  is  done  directly  as  has  been  already  de- 
scribed, and  indirectly  by  maintaining  his  own  agent,  the 
manufacturer's  agent,  who  keeps  in  touch  with  the  ex- 
port commission  house  with  hopes  of  receiving  their 
orders.  Manufacturers  located  in  the  interior  are 
using  this  means  more  and  more.  Some  firms  more  en- 
terprising than  the  others  are  extending  their  activities 
into  the  foreign  market.  Four  methods  are  used  in 
putting  their  goods  upon  the  market:  (1)  through 
local  merchants  or  "jobbing"  houses;  (2)  through 
foreign  resident  commission  agents;  (3)  by  means  of 
salesjaen  sent  out  by  American  manufacturers;  (4) 
through  their  own  branch  houses  established  in  foreign 
markets. 

59.  "Jobbing"  houses. — The  first  method  has  the  ad- 
vantage of  securing  a  representative  who  is  interested 
in  the  manufacturer's  wares  because  he  has  a  personal 
interest  in  the  profits.  The  manufacturer  should  weigh 
against  this  the  practices  that  have  grown  up  around  this 
form,  especially  where  the  merchant  or  "jobber"  has 
been  given  exclusive  control  over  any  considerable  ter- 
ritory. Self  interest  has  often  induced  the  merchant  to 
take  a  competitive  manufacturer's  goods  and  push  them 
where  a  more  favorable  price  could  be  obtained.  Often, 
where  the  American  wares  have  attracted  trade  by  their 
novelty,  the  merchant  has  had  a  similar  article  made  by 
some  home  manufacturer  at  a  cheaper  price  and  has 
gradually  substituted  the  latter  for  the  former.  Hav- 
ing an  exclusive  control  over  the  American  article  he 
can  easily  maintain  the  appearance  of  selling  it  by  send- 


ORGANIZATION  OF  EXPORT  BUSINESS      107 

ing  in  a  few  orders  now  and  then,  for  the  sake  of  keep- 
ing American  competition  out  of  the  field. 

60.  Foreign  commission  agents. — The  second  method 
is  not  a  favorite  one  with  Americans.     They  hesitate  to 
intrust  their  interests  to  unknown  agents.     As  a  very  un- 
satisfactory class  of  agents  has  developed  in  this  field, 
manufacturers  should  examine  the  references  of  such 
agents  with  care.     In  nearly  every  country  except  the 
United  States  an  order  is  a  contract,  and  the  agent  ac- 
cording to  the  laws  is  also  authorized  to  collect  moneys. 
A  manufacturer  may  provide  that  orders  tendered  by 
agents  be  accompanied  by  bankers'  references.     This 
will  show  the  financial  position  of  the  customer  and  help 
the  manufacturer  in  forming  a  judgment  of  his  credit 
reliability;  or  he  may  demand  that  a  draft  be  attached 
to  documents.     Many  houses  use  commission  agents  to 
develop  trade  among  the  minor  tradesmen.     By  having 
a  reliable  agent  on  the  ground  many  small  individual 
orders  can  be  shipped  and  financed  together.     The  man- 
ufacturer in  such  cases  draws  directly  upon  the  agent 
who  attends  to  collections  and  the  delivering  of  the 
goods.     Such  drafts  are  generally  dated  so  as  to  give 
the  agent  time  to  make  his  collections  before  meeting 
payment  on  the  manufacturer's  draft. 

61.  American  salesmen  abroad. — The  third  mode  of 
establishing  a  manufacturer's  goods  in  a  foreign  market 
embodies  the  personal  representation  principle.     The 
salesman  should  therefore  be  selected  with  much  care. 
His  personality  will  be  a  strong  factor  in  making  de- 
sirable and  permanent  trade  connections.     The  Ameri- 
can "drummer"  type  seldom  succeeds.     A  competent 
judge  in  this  matter  estimates  that  fully  80  per  cent  of 
American  salesmen  who  visit  foreign  countries  to  intro- 
duce American  goods  return  home  complete  and  dismal 


108  BUSINESS  ORGANIZATION 

failures,  no  matter  how  satisfactory  a  record  they  may 
have  established  in  our  own  country. 

Personal  representation  in  the  foreign  field  is  so  im- 
portant, however,  that  many  manufacturers  make  fre- 
quent trips  themselves.  Many  foreign  markets  lie  at 
the  manufacturer's  door,  as  Canada  and  Mexico,  but  it 
costs  but  little  to  visit  the  principal  European  markets. 
Four  hundred  dollars  will  cover  the  expense  of  a  four 
weeks'  trip  abroad. 

62.  Branch  houses. — In  the  larger  markets  where  it  is 
necessary  to  keep  up  an  established  business  as  well  as 
to  develop  a  new  trade,  the  fourth  method  is  considered 
a  very  desirable  one,  even  if  it  is  confined  to  an  estab- 
lishment's sales  agency.  This  method  permits  foreign 
customers  to  fill  orders  without  delay  or  the  formalities 
connected  with  long  distance  ordering,  and  to  order  in 
small  quantities.  The  branch  house  also  impresses  the 
customer  with  a  feeling  of  security  in  the  responsibility 
of  the  distant  firm.  Mistakes  and  disputes  are  easily 
adjusted  and  redress  effected  without  the  delay  which 
a  long  tedious  correspondence  entails. 

A  modification  of  the  above  method  is  frequently 
adopted  by  firms  whose  foreign  trade  does  not  warrant 
the  expense  of  maintaining  a  branch  house  alone. 
Therefore  several  non-competing  houses  unite  and  put 
their  trade  into  the  hands  of  a  "combination"  salesman. 
This  method  is  particularly  popular  in  England  and 
Germany.  When  these  agents  keep  stocks  of  goods 
and  collect  money,  the  firms  represented  in  the  "combi- 
nation" frequently  require  bonds  of  the  salesman. 

A  still  further  adaptation  of  the  branch  house  method 
is  to  establish  one  main  office  in  a  centrally  located  mar- 
ket and  put  it  in  charge  of  all  the  other  sub-branches. 
London  is  naturally  the  great  center  for  these  houses 


ORGANIZATION  OF  EXPORT  BUSINESS     109 

since  it  is  in  more  direct  touch  with  the  different  parts 
of  the  world  than  any  other  city.  Of  course  the  more 
indirect  the  connection  between  the  consumer  and  the 
manufacturer,  the  greater  the  expense  and  the  greater 
too  is  the  opportunity  offered  for  mal-practice  which  is 
detrimental  to  both  the  manufacturer  and  the  consumer. 
How  the  line  of  dependence  is  organized  may  be  seen  in 
the  following  examples.  Importers  in  Switzerland 
order  through  an  agent  in  Germany  who  has  charge  of 
the  continental  business;  he  in  turn  orders  through  the 
London  branch  which  has  general  charge  of  the  Euro- 
pean trade.  The  London  agent  finally  places  the  order 
in  the  hands  of  the  American  manufacturer. 

How  some  of  the  prominent  American  manufactur- 
ers work  through  their  European  branch  houses  is  de- 
scribed by  Mr.  Hough  thus: 

A  large  American  manufacturer  01  steam-heating  apparatus 
puts  his  general  European  business  under  control  of  his  British 
branch.  This  branch,  however,  quotes  prices  in  two  different 
ways.  Carrying  a  stock  of  goods  in  England  it  quotes  for 
prompt  shipment  from  England  to  European  points,  prices  10 
per  cent  in  excess  of  similar  prices  quoted  for  shipment  direct 
from  the  factory,  which  latter  prices  are  invariably  the  same  as 
would  be  quoted  by  the  factory  itself.  Ten  per  cent  advance 
demanded  for  shipment  from  English  stock  is  thought  to  be  justi- 
fied by  the  expenses  incurred  in  carrying  stocks,  and  proves  ac- 
ceptable to  many  European  buyers,  especially  when  very  prompt 
delivery  is  required.  A  large  American  manufacturer  of  steam 
pumps  has  agencies  established  in  all  the  principal  European 
capitals.  Stock  is  carried  at  each  agency  subject  to  the  general 
control  of  the  main  branch  in  London.  Once  a  month  a  stock 
list  is  published  of  all  goods  on  hand  in  each  one  of  the  different 
agencies.  This  list  is  put  promptly  into  the  hands  of  each 
agent  so  that  each  one  is  not  only  posted  as  to  goods  in  his  own 


110  BUSINESS  ORGANIZATION 

stock,  but  as  to  pumps  of  other  sizes  or  descriptions  which  are 
available  at  other  agencies,  and  in  case  a  special  pump,  not  in 
the  agent's  own  stock,  is  required  at  once,  a  telegram  can  be 
dispatched  to  the  nearest  brother  agency,  where  the  pump  of 
the  desired  description  is  available  and  the  apparatus  received 
in  the  shortest  time  possible. 


CHAPTER  VII 

CONSULAR  SERVICE 

63.  Purpose  of  the  consul. — Among  the  public  trade- 
promoting  institutions  we  may   include  the   consular 
service.     A  consul  is  really  an  agent  for  the  promotion 
of  commercial  intercourse  between  the  country  he  repre- 
sents and  the  one  in  which  he  lives  as  consul.     Consular 
service  is  largely  a  business  organization  and  should 
therefore  be  managed  as  a  business  department.     Until 
recently  the  American  people  have  been  so  busy  with  the 
development  of  the  vast  home  resources  that  they  have 
had  little  occasion  to  be  interested  in  the  representation 
of  their  interests  abroad.     But  the  growth  of  foreign 
commerce  has  given  rise  to  a  demand  for  a  better  con- 
sular service.       The  United  States  is  to-day  an  exporter 
as  well  as  an  importer,  and  this  fact  has  stimulated  all 
forms  of  business  activity. 

The  consul  is  not  necessarily  a  diplomatic  officer,  who 
is  concerned  mainly  with  political  relations.  The  con- 
sul is  a  commercial  agent  acting  in  an  official  capacity. 
Sometimes,  however,  the  duties  of  the  two  overlap. 
The  consul  may  help  greatly  in  administering  the  tariff 
law,  particularly  in  certifying  consular  invoices  and 
sending  out  reports  on  commercial  subjects.  In  1856 
annual  reports  were  for  the  first  time  sent  out,  and  in 
1881  was  begun  the  issue  of  monthly  reports  which  have 
been  supplemented  since  1897  by  daily  commercial  re- 
ports. 

64.  Brief  history  of  the  American  consular  service. — 

111 


112  BUSINESS  ORGANIZATION 

The  American  consular  service  was  created  primarily  to 
protect  the  lives  and  property  of  United  States  citizens 
abroad.  This  grew  out  of  a  still  more  primary  desire  to 
protect  American  shipping.  The  first  consul  was  ap- 
pointed in  1780,  but  no  laws  regarding  this  office  were 
passed  until  1792.  In  this  year  (1792)  consuls  and 
vice  consuls  were  appointed,  while  in  1801  consular 
agents  appeared,  and  in  1856  consular  clerks.  In  1854 
the  title  of  consul-general  was  used  for  the  first  time  and 
since  then  the  number  of  offices  has  increased  steadily. 
Until  very  recently  little  attention  was  given  to  the  fit- 
ness of  appointees  to  the  service.  Politicians,  unsuc- 
cessful business  men,  or  persons  who  wanted  to  give 
their  children  a  foreign  education,  were  often  given 
consulates.  But  now  that  Germany  is  competing  so 
keenly  with  America  in  foreign  trade,  and  succeeding 
because  of  her  remarkably  able  consular  service,  the 
United  States  has  realized  that  she  must  improve  her 
consular  service  so  as  to  reap  the  consequent  benefits  of 
a  more  wide-spread  prosperity  for  her  own  people. 

65.  Present  system  governing  consular  appointments. 
— In  1906  a  new  system  was  inaugurated  for  the  pur- 
pose of  procuring  more  efficient  consular  officers.  A 
board  of  examiners  consisting  of  the  third  assistant  sec- 
retary of  state,  the  chief  clerk  of  the  department  of 
state,  and  the  chief  examiner  of  the  civil  service  com- 
mission hold  examinations  for  admission  to  the  consular 
service.  This  is  open  only  to  applicants  between  the 
ages  of  twenty-one  and  fifty,  who  are  American  citi- 
zens of  good  habits,  and  who  are  qualified  physically  and 
mentally  for  this  work.  They  must  have  been  designated 
by  the  President  of  the  United  States  for  appointment 
subject  to  examination.  The  examinations  are  also  for 
student  interpreters  who  are  to  be  stationed  in  the 


CONSULAR  SERVICE  113 

Orient,  for  the  purpose  of  studying  Chinese  and 
Japanese  to  aid  the  consulate  in  interpreting  these 
languages.  Interpreters  must  be  unmarried,  and  be- 
tween the  ages  of  19  and  26.  They  are  to  remain  in 
service  for  ten  years. 

The  examination  is  written  and  oral,  and  an  average 
of  80  per  cent  must  be  obtained  in  both.  The  subjects 
for  the  written  examinations  are:  one  modern  foreign 
language;  the  natural,  industrial  and  commercial  re- 
sources of  the  United  States  in  reference  to  foreign 
trade;  political  economy;  elements  of  international,  com- 
mercial and  maritime  law;  American  history,  govern- 
ment and  institutions;  political  and  commercial  geogra- 
phy; arithmetic;  European  history  and  the  history  of 
the  Far  East  since  1850.  The  oral  examination  is  for 
the  purpose  of  determining  the  character,  alertness,  and 
general  information  of  the  applicant;  his  natural  fitness 
for  the  service,  his  command  of  English  and  his  general 
education. 

Those  who  pass  a  creditable  examination  are  ap- 
pointed to  the  eighth  or  ninth  grade  of  consuls,  or  they 
may  become  vice  or  deputy  consuls,  clerks  or  student  in- 
terpreters. Those  serving  in  the  department  of  state 
with  annual  salaries  of  $2,000  or  more  may  be  promoted 
to  any  grade  of  the  consular  service  above  the  eighth 
grade.  Vacancies  in  offices  above  the  ninth  grade  are 
filled  by  advancements  from  lower  grades.  Political 
views  are  to  play  no  part  whatever  in  appointments  and 
promotions.  The  test  is  to  be  efficiency.  It  will  be 
seen  that  the  examination  is  not  competitive,  and  only 
those  well  qualified  are  likely  to  be  appointed.  Success- 
ful candidates  are  placed  upon  the  eligible  list  for  two 
years.  There  is  also  a  system  of  inspection  which  gives 
the  government  detailed  reports  of  every  United  States 

.11—8 


BUSINESS  ORGANIZATION 

consular  officer.  Besides,  there  is  an  efficiency  record 
which  determines  advancement. 

66.  Grades  and  salaries  in  the  consular  service. — 
There  are  seven  classes  of  consuls-general  and  nine 
classes  of  consuls.  The  distinction  between  the  two 
ranks  is  not  sharply  defined.  The  salaries  of  some  con- 
suls are  greater  than  those  of  some  consuls-general. 
The  consul-general  is  placed  at  the  head  of  a  consular 
district  and  he  has  supervisory  authority  over  other  con- 
sular posts.  This  office  is  known  as  a  consulate-general, 
and  to  it  belong  a  vice  and  a  deputy  consul-general  and 
one  or  more  consular  clerks.  Then  there  are  consular 
agents  who  report  to  their  superior  officers  but  make  no 
direct  reports  to  the  government. 

The  salaries  of  the  310  consuls  and  consuls-general 
range  from  $2,000  to  $12,000  each.  No  consul  is  al- 
lowed to  engage  in  private  business,  nor  is  he  to  practice 
law.  He  must,  however,  perform  service  as  a  notary. 
All  fees  are  to  be  paid  into  the  treasury,  his  salary  being 
his  only  compensation.  The  following  list  of  divisions 
and  salaries  is  according  to  the  present  law: 


Class 
Class 
Class 
Class 
Class 
Class 
Class 

I. 
II. 
III. 
IV. 
V. 
VI. 
VII. 

cc 

(  2 

(  6 
(  8 
(11 
(18 

(  9 
(3 

INS 
in 
in 
in 
in 
in 
in 
in 

ULS-GENERAL. 
alii                                     simoon 

all)  .  . 

8,000 

all) 

6,000 

all)  .  . 

5,500 

all) 

4,500 

all) 

3500 

all)    . 

3,000 

Total,  57 

CONSULS. 

Class          I.     (  1       only) $8,000 

Class        II.     (  1       only) 6,000 

Class      III.     (  8    in    all) 5,000 

Class       IV.     (12   in   all) 4,500 


CONSULAR  SERVICE  115 

Class        V.     (21   in   all) 4,000 

Class      VI.     (32   in  all) 3,500 

Class    VII.     (47   in  all) 3,000 

Class  VIII.     (61    in   all) 2,500 

Class      IX.     (70   in   all) 2,000 


Total,  253 

67.  Consular  reports. — About  a  half  century  ago, 
following  the  example  of  France  and  England,  con- 
sular officers  were  encouraged  to  make  commercial  re- 
ports. It  was  found  that  a  good  way  to  promote 
foreign  trade  was  to  collect  material  abroad  of  a  com- 
mercial character  in  the  interest  of  navigation,  com- 
merce, agriculture  and  manufacturing.  The  monthly 
consular  reports  are  sent  to  educational  institutions, 
libraries,  and  the  general  public,  while  the  daily  reports 
are  sent  mainly  to  newspapers,  commercial  bodies  and 
exporting  and  manufacturing  firms.  Since  1890  a 
series  called  "Special  Consular  Reports"  has  been  pub- 
lished. These  are  collections  of  articles  on  special  sub- 
jects prepared  in  the  form  of  printed  circulars  for  con- 
sular officers.  Some  of  the  titles  are:  "Cotton  Textiles 
in  Foreign  Countries,"  "Malt  and  Beer  in  Spanish 
America,"  "Insurance  in  Foreign  Countries,"  and 
"Streets  and  Highways."  Some  of  these  articles  have 
been  distributed  widely  in  the  United  States,  where  they 
are  occasionally  in  great  demand.  In  the  Daily  Con- 
sular  and  Trade  Reports  we  find  a  greater  definiteness 
and  exactness  in  detail.  These  concern  foreign  cus- 
toms regulations  and  tariffs;  local  demands  in  various 
markets;  local  styles  and  habits;  reports  on  crops;  re- 
ports on  foreign  business  methods  in  respect  to  credits, 
means  of  sale  and  packing ;  and  foreign  food  and  patent 
laws.  Following  are  some  of  the  considerations  dis- 
cussed in  the  daily  and  monthly  reports:  Tobacco  in 


116  BUSINESS  ORGANIZATION 

France,  The  Mining  Industry  in  Africa,  American 
Trade  in  Mexico,  The  Sugar  Industry  in  Cuba,  Flour 
Milling  in  Italy,  Seeking  Trade  in  Canada,  Musical  In- 
struments in  China,  Reaping  Machinery  for  India, 
Olive  Crop  Reports,  and  so  on.  In  the  article  on  "Seek- 
ing Trade  in  Canada,"  the  following  subheads  are  briefly 
treated  of:  "How  to  increase  American  trade  in  the 
Dominion,"  "Mail  Orders  and  Advertising,"  "British 
and  German  Trade  Efforts,"  and  "Prices  of  Farm  Ma- 
chines." In  an  article  on  "American  Trade  in  Switzer- 
land," the  cause  of  the  small  number  of  sales  in  the 
Republic  is  discussed,  as  well  as  what  the  commercial 
traveler  sells  in  Switzerland.  In  another  article  called 
"Burma  as  a  Trade  Field,"  these  subheads  appear: 
"Opportunities  for  Increased  Sales  of  American  Prod- 
ucts," "Imports  and  by  Whom  Controlled,"  "American 
Sales  Methods  at  Fault,"  and  "Methods  for  Increasing 
American  Trade." 

A  knowledge  of  foreign  customs  regulations  and 
tariffs  is  of  great  importance  to  the  importer  and  ex- 
porter. Recently  the  consular  reports  have  referred  fre- 
quently to  any  new  requirements.  Besides  helping  out  in 
any  formal  difficulties  that  may  arise,  such  as  failure  to 
pack  things  separately  and  specifying  exactly  what  is  in 
the  packages,  the  changes  in  tariff  schedules  enable  the 
exporter  to  figure  out  more  exactly  his  margin  of  profit. 
For  instance,  the  following  bit  of  information  found  in 
one  of  the  later  monthly  reports  would  be  of  very  practi- 
cal interest  to  an  exporter  of  sterling  and  plated  silver 
and  gold  ware  to  France: 

Sterling  silver  is  difficult  to  import  from  the  United  States  on 
account  of  the  government  control,  as  each  piece  of  silverware 
must  be  stamped  by  the  government  officers,  and  a  tax  per 


CONSULAR  SERVICE 

weight  is  paid  for  control.  Silverware  that  has  not  the  stamp 
of  the  government  control  cannot  be  sold,  and  none  is  permitted 
entry  from  abroad  unless  it  passes  through  the  controle  and 
pays  the  stamp  tax.  The  same  may  be  said  of  all  articles  of 
gold. 

Then  follow  extracts  from  statutes  in  detail,  giving 
the  exact  taxes  and  requirements  for  the  sale  of  this 
class  of  articles. 

The  necessity  of  international  protection  of  patents 
is  often  emphasized  in  the  reports.  Often  an  American 
article  has  been  imitated  by  other  nations  and  sold,  which 
practice  has  interfered  greatly  with  the  American  trade, 
as  in  the  case  of  the  sewing  machine  in  Brazil,  where  it 
was  sold  by  German  manufacturers.  Valuable  service, 
too,  has  been  rendered  by  the  consuls  in  protecting 
American  trade  marks  and  patents  when  registered 
abroad. 

Nearly  every  issue  of  the  reports  has  some  reference 
to  the  regulations  concerning  the  preparation  of  foods 
for  foreign  markets.  Many  of  the  laws  restrict  the  im- 
portation of  American  fruits  and  meats.  Some  of  the 
rules  are  only  formal  ones  for  the  purpose  of  protecting 
the  local  trade,  while  others  are  in  reality  intended  to 
protect  the  public  health.  In  Germany  there  is  a  law 
which  prohibits  the  importing  of  fruit  dried  on  zinc 
frames  which  is  probably  simply  a  measure  to  restrict 
the  American  competition.  In  Canada  no  patent  medi- 
cine is  allowed  to  be  sold  if  it  contains  cocaine,  or  alcohol 
in  excess  of  the  amount  required  as  a  solvent  or  preserv- 
ative, or  if  it  contains  any  drug,  of  a  long  list  submitted 
in  the  consular  report,  which  is  not  printed  conspicuously 
on  the  label  and  wrapper  of  the  bottle.  This  latter 
measure  is  probably  really  intended  for  the  public 
health. 


118  BUSINESS  ORGANIZATION 

68.  Foreign  needs  and  prejudices. — One  decidedly 
important  feature  of  the  consular  reports  is  the  very 
frequent  reference  to  the  demands  of  the  local  markets. 
Upon  the  accuracy  of  this  information  depends  much 
of  the  success  or  failure  of  the  American  export  busi- 
ness. Until  recently  the  exports  from  the  United 
States  to  Hong  Kong  were  almost  exclusively  flour 
and  kerosene.  But  now  that  the  local  demands  and  the 
methods  of  carrying  on  business  in  the  East  are  better 
understood,  there  has  been  a  considerable  expansion  of 
trade  with  these  countries.  Exporters  are  taking  up 
every  suggestion  much  more  seriously  than  before. 
Some  years  ago,  an  exporter  of  tinned  goods  found  that 
a  good  part  of  his  shipment  had  been  rejected  appar- 
ently without  any  reason.  Upon  investigation,  it  was 
found  that  the  rule  in  China  was  to  open  every  case,  re- 
move the  wrappers  and  examine  every  tin.  If  a  label 
was  in  the  least  blemished  the  tin  was  rejected.  The 
exporter  must  either  comply  with  these  rules  or  lose  his 
trade,  for  the  Chinese  guild  listens  to  no  argument  and  is 
decidedly  autocratic  in  carrying  out  its  rules.  This  in- 
stance shows  the  importance  of  having  full  and  correct 
information  on  such  matters. 

Americans  have  often  been  criticized  for  not  paying 
sufficient  attention  to  local  styles  and  prejudices  in  the 
export  trade,  and  for  that  reason  have  sometimes  been 
left  far  behind  while  Germany  and  England  have  suc- 
ceeded admirably  in  introducing  certain  articles  of  ex- 
port especially  in  many  of  the  backward  countries  where 
local  preference  is  often  groundless.  It  is  not  that  these 
people  are  prejudiced  against  American-made  goods;  it 
is  simply  that  they  do  not  know  of  them  or  that  the 
goods  are  not  exactly  what  they  want.  The  Germans 
send  reliable  and  capable  salesmen  who  speak  the  Ian- 


CONSULAR  SERVICE  119 

guage  and  understand  the  customs  of  the  particular 
country  to  which  they  are  sent,  and  these  generally  suc- 
ceed in  introducing  some  line  of  goods  which  conforms 
to  the  native  ideas.  Report  after  report  emphasizes  the 
importance  of  sending  a  good  salesman  who  speaks  the 
language  and  who  does  not  expect  to  succeed  without  a 
strong  effort.  Too  many  houses  expect  to  succeed  in 
introducing  a  new  article  by  simply  sending  out  cata- 
logues and  price  lists. 

To  illustrate  the  conservatism  of  various  countries  we 
may  cite  a  few  instances  from  the  consular  reports  of 
various  years.  It  would  do  no  good  to  attempt  at 
present  to  introduce  mutton,  or  butter  or  cheese  into 
Japan,  as  the  Japanese  have  no  taste  for  these  things- 
while  cotton  seed  oil  would  probably  find  a  good  markei 
as  well  as  condensed  milk.  The  Chinese  and  Japanese 
want  distinctive  native  patterns  in  cottons,  and  the  Eng- 
lish in  conforming  to  their  taste  by  actually  copying  de- 
signs of  old  Japanese  art  upon  their  fabrics  have  suc- 
ceeded admirably  in  this  line  of  export  trade.  The  Sa- 
moans  want  gaudy  patterns  in  cotton  goods;  in  Hayti 
mauve  is  popular;  in  West  Africa  the  men  wear  flowing 
white  gowns  and  the  women  gay  calicoes  and  velvets. 
In  Cuba  there  is  a  good  market  for  cheap  white  canvas 
shoes  and  low  cut  tan  or  russet  high  heeled  shoes  in 
rather  small  sizes,  as  the  Cuban  has  a  small  foot.  In 
Asia  Minor  the  people  are  gradually  disposing  of  their 
ancient  costumes  and  there  is  now  a  market  in  Smyrna 
for  American  ready  made  clothing,  especially  the 
cheaper  grades  of  men's  suits.  The  Dominicans  prefer 
a  good  grade  of  dressy  soft  or  vici  leather  shoes;  the 
women  especially  like  low  fancy  strap  slippers  and  san- 
dals with  beaded  ornamentation.  There  is  no  market 
in  France  for  American  silver  plated  ware  unless  the  de- 


120  BUSINESS  ORGANIZATION 

signs  are  of  a  type  familiar  to  the  French  purchaser, 
who  desires  classical  styles,  such  as  Louis  XV  and  XVI, 
Empire,  and  so  on.  In  Germany  it  would  do  no  good  to 
try  to  sell  American  silver  plated  spoons  and  forks,  as 
the  Germans  favor  a  different  style — narrower,  longer 
and  more  pointed  bowls  in  the  spoons,  and  longer  and 
more  slender  prongs  in  forks. 

The  consular  reports  sometimes  mention  shortage  of 
crops  in  foreign  countries.  Occasionally  there  are  op- 
portunities for  starting  an  export  trade  on  this  account. 
When  the  shipping  is  once  started  it  is  apt  to  go  on  in- 
definitely. After  the  apple  shortage  in  Tasmania  not 
long  ago,  large  supplies  of  American  cold-stored  apples 
were  sold  in  Europe  and  Australia. 

69.  Foreign  credits. — Another  thing  of  importance 
to  the  exporter  is  a  knowledge  of  foreign  business 
methods.     Consuls  have  furnished  valuable  information 
as    to    local    practices    of    granting    credits    as    well 
as  to  methods  of  collecting  debts.     This  is  a  typical 
paragraph  found  often  in  the  consular  reports:     "A 
manufacturer  who  demands  cash  in  full  at  the  port  of 
shipment  should  not  expect  much  business  in  -        — . 
The  European  competitor  gives  credit  and  thus  gets 
most  of  the  business.     Of  course  he  studies  his  customers 
through  his  traveling  salesman  and  knows  whom  to 
trust  and  takes  but  few  chances."     Compliance  with 
this  custom  is  essential  in  all  trade  with  South  America. 

70.  Methods  of  packing. — There  is  a  very  general 
complaint  abroad  in  regard  to  the  method  of  packing  by 
American  firms  who  have  as  a  rule  shown  contempt  for 
this.     The  consul  can  be  of  invaluable  aid  in  giving  in- 
structions to  the  merchant  starting  on  foreign  trade. 
If  the  merchant  disregards  these  instructions,  he  has 
only  himself  to  blame.     American  trade  is  often  lost  in 


CONSULAR  SERVICE 

the  Orient  for  this  reason.  To  illustrate:  An  Ameri- 
can firm  was  selling  a  bottled  relish  in  the  Philippines 
and  sent  it  so  badly  packed  that  it  often  arrived  in  dam- 
aged condition.  When  the  local  firms  wrote  to  the 
American  house  explaining  that  better  packing  would 
remedy  the  condition  for  further  orders,  the  house  re- 
plied curtly,  saying  that  its  men  knew  how  to  pack 
goods.  Later  shipments  arrived  in  as  badly  damaged 
condition  and  as  a  consequence  orders  were  transferred 
to  a  foreign  house  which  guaranteed  the  condition  of 
shipments. 

It  stands  to  reason  that  meats  for  hot  climates  must 
be  very  especially  packed,  furniture  must  be  sent 
knocked  down  to  avoid  excessive  freight  charges, 
leather  should  be  shipped  in  strong  thick  boxes,  with 
zinc  linings,  bound  with  iron  bands  to  keep  out  the 
dampness  of  a  long  sea  voyage,  and  flour  in  barrels 
should  have  plenty  of  hoops  to  keep  out  moisture  and 
allow  rolling.  Freight  is  very  roughly  handled  on  the 
Chilean  coast,  and  in  the  trade  with  Chile  poor  packing 
on  the  part  of  many  American  exporters  has  been  and 
still  is  a  great  handicap  to  the  advance  of  American 
trade  in  these  regions. 

The  consular  reports  are  full  of  instructions  in  re- 
gard to  methods  of  selling  in  foreign  countries.  Often 
catalogues  and  circulars  are  sent  out  by  American  firms 
in  a  language  which  the  local  merchant  does  not  under- 
stand. Jt  has  been  repeatedly  pointed  out  that  cata- 
logues even  in  the  local  language  cannot  take  the  place 
of  branch  houses  and  traveling  agents  who  speak  the 
language  and  understand  the  customs  of  the  country. 
Some  consulates  have  a  complete  directory  of  local  busi- 
ness houses  and  will  file  all  catalogues  and  price  lists  re- 
ceived from  the  American  houses,  especially  when  in 


BUSINESS  ORGANIZATION 

the  native  languages.  They  even  encourage  exhibi- 
tions of  samples  of  American  manufacture,  but  export- 
ers have  not  generally  availed  themselves  of  these 
offers. 

71.  Foreign  trade  opportunities. — Of  late  the  United 
States  government  has  followed  the  German  method  of 
discriminating  in  favor  of  its  own  citizens  by  giving 
them  various  classes  of  trade  intelligence.  In  the  Daily 
Consular  and  Trade  Reports  there  is  a  department  en- 
titled "Foreign  Trade  Opportunities."  Here  notice  is 
given  of  inquiries  on  file  at  the  Bureau  of  Manufactures. 
Each  inquiry  has  a  file  number  to  which  applicants  re- 
fer. Some  of  them  give  names  and  addresses,  but 
many  are  entirely  confidential  in  the  interest  of  pro- 
moting the  American  export  trade  exclusively.  Among 
the  things  asked  for  are  the  following:  mining  ma- 
chinery; celluloid  for  the  manufacture  of  combs;  dry 
goods  agencies;  cedar  boards  and  machines  for  making 
pencils;  railway  ties;  machinery  for  making  sickles, 
scythes,  straw  cutters,  and  wood  work ;  supplies  for  con- 
structing electric  tramway  lines;  American  coal;  house- 
hold and  kitchen  novelties ;  chewing  gum ;  telegraph  and 
telephone  supplies;  American  mirrors,  and  steel  rails. 
It  will  be  seen  that  there  is  a  great  variety  in  the  articles 
called  for.  It  will  be  well  to  quote  a  few  of  these  trade 
opportunities  as  found  listed  in  the  reports: 

No.  3246.  AMERICAN  MACHINERY  AND  FURNITURE. — A 
report  has  been  received  from  an  American  consul  in  Latin 
America  in  which  he  states  that  a  business  man  in  the  city  in 
which  he  is  located  desires  to  place  orders  for  the  following 
articles:  Dental  and  surgical  instruments,  butter-making  ma- 
chinery, incubators,  office  furniture,  and  bread-making  machin- 
ery. American  manufacturers  interested  in  these  lines  are 


CONSULAR  SERVICE  123 

invited  to  mail  to  him  at  once  catalogues  illustrating  their  arti- 
cles, as  well  as  price  lists  and  terms  of  payment. 

No.  3291.  COTTON-SEED  OIL. — A  report  has  been  received 
from  an  American  consular  office  in  a  city  of  southern  Europe 
in  which  he  states  that  advices  have  been  received  at  his  office 
from  a  local  business  man  who  desires  to  be  placed  in  communi- 
cation with  American  exporters  of  cotton-seed  oil  with  a  view 
to  importing  the  same. 

72.  Protection  of  customs  revenues. — There  is  an- 
other way  in  which  the  consuls  help  foreign  trade. 
This  is  the  protection  of  the  customs  revenue  which,  of 
course,  deals  only  with  the  import  trade.  All  goods  in- 
tended to  be  imported  into  the  United  States  must  be 
accompanied  by  invoices  sworn  to  and  certified  by 
the  consul  at  the  shipping  port.  The  object  is  to  help 
verify  the  correctness  of  the  invoice  and  to  prevent 
frauds  upon  the  revenue.  The  system  of  ad  valorem 
duties  invites  the  undervaluation  of  imported  goods. 
This  gives  an  advantage  to  the  foreign  merchant.  By 
means  of  consular  effort  to  prevent  this  practice,  dis- 
honesty has  been  greatly  checked. 

If  the  American  consular  service  is  to  become  as  effi- 
cient as  it  should,  it  must  have  a  decidedly  commercial 
trend,  and  display  the  qualities  of  good  business  man- 
agement. An  ideal  consulate  should  not  confine  itself 
merely  to  attending  to  business,  but  should  attempt  to 
create  new  business.  This  it  cannot  do  unless  the  im- 
portant manufacturing  and  mercantile  houses  are  will- 
ing to  avail  themselves  of  the  consular  services  in  spread- 
ing their  trade  in  foreign  countries. 


CHAPTER  VIII 

ORGANIZATION  IN  MANUFACTURING  INDUSTRIES 

73.  Specialization  and  cooperation. — In  the  previous 
chapters  we  have  attempted  to  bring  out  the  important 
lines  of  development  in  the  industrial  world  which  have 
influenced  the  organization  of  modern  business.  If  we 
were  to  examine  the  business  of  transportation  or  of 
agriculture,  the  same  tendencies  toward  mass  produc- 
tion, i.  e.,  transportation  in  bulk,  and  farming  on  a  large 
scale,  would  be  discovered.  The  machine  has  been  as 
potent  an  influence  here  as  in  other  fields.  Combina- 
tion of  technical  departments,  consolidation  of  financial 
interests,  cooperation  among  the  working  forces  have 
been  the  means  whereby  the  possibilities  due  to  the  sep- 
aration of  processes,  to  individual  initiative,  and  to 
division  of  labor  have  been  made  to  materialize. 
Specialized  machinery,  specialized  management  and 
specialized  labor  have  made  possible  the  present  scale  of 
production,  but  friction  and  retarded  efficiency  would 
have  made  these  possibilities  futile  if  cooperation  had 
not  been  introduced.  The  establishment  of  an  equi- 
librium between  these  two  tendencies  of  specialization 
and  cooperation  is  the  problem  of  modern  business  or- 
ganization. 

Not  only  must  there  be  a  continual  shifting,  in  order 
to  maintain  a  balance  of  the  great  divisions  of  produc- 
tion, distribution  and  exchange,  but  the  various  units 
within  each  division  must  likewise  change  their  posi- 
tions so  that  their  efficiency  will  not  be  reduced  through 


MANUFACTURING  INDUSTRIES  125 

mal-adjustment;  furthermore,  each  business  concern 
must  correlate  the  forces  within  its  own  organization  if 
its  product  is  to  be  made  economically. 

It  is  to  this  last  point  in  the  industrial  organization 
that  this  chapter  will  direct  attention.  Whether  the 
business  enterprise  is  represented  by  the  wholesale 
house,  the  department  store,  the  small  retail  store,  or  the 
factory,  the  organization  must  adjust  itself  to  the  sys- 
tem of  mass  production.  The  organization  of  a  manu- 
facturing concern  is  chosen  since  certain  problems  per- 
taining to  capital  and  labor  arise  here  that  do  not  become 
so  prominent  in  the  other  enterprises. 

It  must  become  evident  very  soon  to  one  investigating 
the  essential  principles  underlying  the  organization  of 
the  manufacturing  business  that  many  forms  of  or- 
ganization exist,  and  that  any  attempt  to  generalize 
must  be  confined  to  the  few  basic  principles  according  to 
which  the  various  forms  are  erected ;  and  to  a  statement 
of  tendencies  prevailing  in  representative  industries. 

74.  Fundamental  principles  of  factory  organization. 
-To  maintain  his  profits  under  the  prevailing  con- 
ditions of  competition  and  mass  production,  the  manu- 
facturer is  compelled  to  extend  his  control  over  the 
market  for  the  raw  materials  necessary  for  his  product, 
and  over  the  market  which  takes  his  wares.  Both  of 
these  movements  have  increased  his  expenses  and  in 
neither  case  could  he  do  it  profitably  unless  the  extension 
enabled  him  to  produce  more  goods  or  permitted  the 
same  bulk  to  be  handled  by  fewer  men  or  more  efficient 
methods.  The  thing  aimed  at  in  either  case  is  the  same 
—the  reduction  of  cost  per  unit  of  output.  This  process 
of  integration  has  had  important  effects  upon  the  in- 
ternal organization  of  the  manufacturing  establishment. 

The  key  to  the  subject  of  factory  organization  is 


126  BUSINESS  ORGANIZATION 

specialization,  standardization,  duplication  of  standard 
parts,  and  system.  These  terms  simply  reflect  the 
ideas  embodied  in  the  expressions — division  of  labor  and 
so  on,  which  are  prevalent  in  the  larger  fields  of  indus- 
trial activity.  It  is  the  vocabulary  from  the  point  of 
view  of  the  shop  or  factory  rather  than  from  the  view 
point  of  the  economist. 

75.  Predetermining  a  business  enterprise. — Before 
taking  up  the  application  of  these  principles  to  the  fac- 
tory organization,  there  are  certain  features  of  the  busi- 
ness that  need  attention.  Capital,  when  once  put  into 
a  manufacturing  plant,  becomes  fixed.  It  cannot  be 
withdrawn  at  will.  It  becomes  necessary  so  far  as  pos- 
sible to  predetermine  the  success  or  failure  of  an  enter- 
prise; and  by  so  doing  offer  protection  to  these  large 
capital  expenditures.  The  success  of  the  business  ven- 
ture depends  upon  many  conditions,  but  in  general  they 
will  be  covered  by  a  consideration  of  the  sources  of  raw 
material  of  manufacture,  of  the  sources  of  power,  of 
the  market  from  which  labor  must  be  drawn,  the  market 
for  the  product,  the  physical  surroundings,  the  trans- 
portation facilities,  and  in  some  cases  the  reorganization 
of  existing  plants. 

The  necessity  for  establishing  a  business  so  that  it 
will  hold  the  correct  relation  to  all  of  the  above  factors 
is  pressing  more  and  more  upon  every  enterprise.  The 
ideal  combination  can  seldom  or  never  be  attained.  It 
is  these  countless  combinations  which  must  be  consid- 
ered that  stand  as  the  greatest  obstacle  in  the  way  of 
managerial  monopoly.  The  largest  of  modern  trusts  is 
continually  on  the  alert  to  discover  the  shifting  of  these 
relations  so  as  to  be  prepared  to  meet  the  attack  of  some, 
capitalist  who  is  ever  ready  to  take  advantage  of  any 
weak  spot  in  the  existing  organization. 


MANUFACTURING  INDUSTRIES  127 

76.  Source  of  raw  materials. — The  location  of  the 
raw  materials  of  industry  has  always  been  an  important 
influence  in  deciding  the  building  spot  of  a  manufactur- 
ing plant.     Especially  has  this  been  true  in  those  in- 
dustries where  raw  materials  must  be  handled  in  large 
quantities.     In  the  process  of  manufacture  the  bulk  is 
reduced.     Thus  a  great  saving  is  made  by  using  the  raw 
material  as  near  as  possible  to  the  source  of  its  produc- 
tion.    The  advantage  is  in  the  difference  in  the  cost  of 
transporting  the  goods  after  their  manufacture  rather 
than  before.     The  great  flour  mills  have  followed  the 
wheat  fields.     There  is  a  tendency  for  the  steel  mills  to 
gravitate  toward  the  iron  mines.     The  cotton  mills  are 
seeking  the  cotton  fields.     Still  this  is  not  always  a  safe 
rule  to  follow.     It  is  claimed  by  some  authorities  that 
the  greatest  flour  milling  company  in  the  world  went  into 
the  hands  of  a  receiver  because  of  the  competition  of 
mills  established,  not  on  the  edge  of  the  wheat  pro- 
ducing belt,  but  in  the  midst  of  a  region  which  was 
made  barren  of  wheat  when  the  great  northwestern 
wheat  fields  and  flour  mills  were  opened  up  and  estab- 
lished.    The  explanation  is  simply  that  the  relations  of 
the  various  factors  in  the  organization  of  the  flour  mill- 
ing business  have  changed.     It  pays,  therefore,  to  build 
mills  in  London,  Liverpool,  Manchester,  and  in  other 
market  centers.     The  price  of  flour  and  the  price  of  the 
by-products  have  both  risen,  and  the  cost  of  transporta- 
tion has  steadily  declined. 

77.  Source  of  power. — This,  like  the  location  of  the 
raw  material,  is  a  fundamental  consideration ;  but  it  can- 
not be  considered  by  itself  alone.     It  is  often  a  difficult 
question  to  decide  whether  to  move  to  the  source  of  the 
raw  material  supply,  or  to  the  coal  field  and  water-fall. 
The  location  of  the  steel  works  in  Pennsylvania  seems 


128  BUSINESS  ORGANIZATION 

to  be  ideal  from  the  point  of  view  of  the  location  of  the 
raw  material  and  the  fuel  supplies.  The  discovery  of 
iron  mines  in  the  northwestern  states  somewhat  changed 
the  relationship  of  the  factory  to  these  two  factors. 
With  the  development  of  the  market  in  the  western 
states,  another  element  making  for  a  disarrangement 
of  the  older  relations  was  injected.  The  building  of 
the  great  steel  plant  at  Gary,  Indiana,  was  probably  a 
resultant  of  the  effects  of  these  various  forces  which  have 
only  recently  become  active.  It  has  divided  the  dis- 
tance between  the  raw  materials  and  the  fuel  supply 
and  has  settled  in  the  center  of  the  greatest  market  of 
the  near  future. 

78.  Labor  market. — Although  this  is  one  of  the  most 
important  considerations  in  determining  the  location  of 
a  plant,  yet  it  is  a  question  which  is  more  and  more 
coming  within  the  scope  of  business  policy  to  solve. 
How  far  a  business  policy  is  effective  in  breaking  down 
barriers  of  distance  between  the  plant  and  the  source 
of  the  labor  supply  is  illustrated  in  the  case  of  the  coal 
mines  and  steel  mills.     Neither  distance  nor  previous 
conditions  of  employment  stand  in  the  way,  for  it  is  a 
remarkable  fact  that  these  great  industries  depend  upon 
agricultural  laborers  drawn  from  a  labor  market  sit- 
uated thousands  of  miles  away  in  central  and  southern 
Europe.     Still  for  the  ordinary  enterprise,  the  labor 
question  is  the  most  difficult  to  solve.     The  cotton  mills 
of  South  Carolina  have  not  yet  solved  it,  but  the  busi- 
ness policies  which  are  being  put  in  operation  are  show- 
ing good  results.     Business  methods  pertaining  to  labor 
will  be  treated  more  specifically  in  the  chapters  on  wage 
systems  and  industrial  betterment  in  Part  II. 

79.  Market  for  the  factory's  output. — Here  again 
the  factory  is  brought  face  to  face  with  the  transporta- 


MANUFACTURING  INDUSTRIES  129 

tion  question.  If  the  policy  of  the  company  is  to  con- 
trol a  small  or  local  trade,  there  will  be  a  great  saving 
in  expense  if  the  middleman  can  be  put  aside  and  the 
selling  done  directly  to  the  purchaser.  This  control 
and  influence  over  the  market  is  further  desired  because 
it  enables  him  to  put  his  goods  upon  the  market  when 
the  demand  is  ripe. 

80.  Transportation  and  its  relation  to  factory  loca- 
tion.— This  great  commercial  factor  has  re-distributed 
the  trade  centers  of  the  world.  The  transportation  has 
changed  from  the  carrying  of  high-priced  articles  in 
small  packages  to  the  transporting  of  low  priced  com- 
modities of  great  bulk.  The  character  of  a  business 
should,  therefore,  be  the  determining  factor  in  selecting 
a  method  of  transportation.  The  relation  of  the  rail- 
way to  the  market  has  such  an  important  bearing  upon 
the  success  of  an  enterprise  that  no  pains  should  be 
spared  in  determining  the  question  of  rates  of  trans- 
portation before  starting  a  business.  A  location,  there- 
fore, which  has  several  competing  railroads  and  water- 
ways, has  the  most  essential  elements  established  for 
maintaining  of  low  rates. 

In  deciding  upon  the  location,  transportation  should 
be  looked  at  from  two  points  of  view. 

(1)  The    character    of    the    business    may    demand 
water  carriage,  or  it  may  require  one  or  more  railways. 
The  lumber  business  is  best  served  by  water  connections ; 
the  cement  business  by  several  lines  of  railway.     Most 
businesses  are  best  served  when  they  have  the  heavy  raw 
material  and  fuel  brought  to  them  by  canal,  and  the 
manufactured  product  taken  away  by  one  or  more  lines 
of  railway. 

(2)  The  transportation  of  labor  to  and  from  the  fac- 
tory is  the  next  consideration.     Even  in  cities  this  is  an 

II— 9 


130  BUSINESS  ORGANIZATION 

important  factor.  Laborers  often  live  at  great  dis- 
tances from  the  works.  Sometimes  a  certain  location  is 
chosen  because  the  land  is  cheap.  Here  there  may  be  a 
railroad  line  which  delivers  freight  once  or  twice  a  week, 
but  no  street  car  or  other  way  of  carrying  the  laborers 
nearer  perhaps  than  within  a  mile  or  so  of  the  works. 
One  business  which  had  proved  a  failure  presented  these 
transportation  conditions  exactly.  It  was  found  that 
ihe  men  had  to  get  up  at  5  o'clock  in  the  morning  to  rush 
off  and  get  a  trolley  which  ran  but  once  a  day.  At  the 
end  of  the  ride  there  was  still  a  mile  and  a  half  to  walk. 
It  resulted  in  tiring  the  men  before  the  day's  work  be- 
gan. This  particular  case  was  complicated  by  the  pres- 
ence of  a  tavern  which  the  men  had  to  pass.  Before  the 
factory  could  be  put  upon  its  feet,  a  stage  line  had  to  be 
established  between  the  trolley  and  the  plant.  This  led 
a  better  class  of  workmen  to  the  shops  and  resulted  in 
improved  workmanship,  which  justified  a  higher  rate 
of>  wages.  The  point  to  be  observed  here  is  that  the 
whole  reorganization  depended  for  its  success  upon  the 
"question  of  the  transportation  of  the  workmen. 

81.  Physical  surroundings. — In  treating  of  the 
physical  surroundings  and  of  the  reorganization  of  the 
plant  we  are  brought  closer  to  the  particular  arrange- 
ments in  and  about  the  factory  itself.  If  the  broader 
relations  of  the  location  have  been  decided  upon,  there 
still  remains  the  local  environment,  and  it  is  at  this  point 
that  the  business  relations  in  the  restricted  sense  become 
the  subject  of  our  present  study./  The  influences  ex- 
erted by  these  factors  will  be  seen  directly  in  the  pro- 
ductive efficiency  of  the  plant.  Many  questions,  such 
as  the  following,  should  be  answered  before  a  locality  is 
.  chosen.  Can  a  proper  system  of  sanitation  be  installed? 
Is  there  good  drinking  water,  and  is  the  water  free  from  I 


MANUFACTURING  INDUSTRIES  131 

acid  or  alkali  for  service  in  boilers  or  whatever  other 
service  required  of  it  in  the  manufacturing  process? 
Are  there  proper  sewage  connections  and  drainage 
facilities?  Is  there  plenty  of  room  to  care  for  waste 
products?  Is  the  ground  upon  which  the  factory  i^ 
put  composed  of  quicksand,  or  is  there  a  sub-stratum  of 
clay  which  prevents  the  water  from  running  awayi? 
These  are  only  a  few  of  the  niany  things  that  may  turn 
an  otherwise  favorable  location  into  a  very  undesirable 
one.  One  has  only  to  think  of  the  many  considerations 
that  arise  when  a  meat-packing  concern  is  to  be  built,  in 
order  to  see  how  varied  and  numerous  are  the  problems 
under  this  score* 

82.  Reorganization  of  existing  plants. — In  the  es- 
tablishment of  an  organization  there  are  three- consid- 
erations in  connection  with  the  plant  itself.  ( 1 )  Is  the 
building  to  be  used  for  a  new  business?  (2)  Shall  the 
new  factory  be  built  to  accommodate  an  old  business 
that  is  already  established,  but  is  to  move  to  a  new  loca- 
tion, or  (3)  has  the  new  factory  to  be  made  so  as  to 
take  over  a  business  that  has  outgrown  its  old  facilities 
and  opportunities? 

In  case  it  is  a  new  business  there  is  the  advantage  of 
being  free  from  old  precedents  and  policies  and  old  sit- 
uations; but  on  the  other  hand,  there  is  the  great  prob- 
lem of  the  uncertainty  attendant  upon  an  untried  mar- 
ket for  the  product.  Before  a  factory  is  built  it  is 
well  to  test  the  demand  for  a  new  product.  Many  new 
products  find  themselves  supplanted  very  early  by  a 
competitive  one.  To  lessen  the  risk  incident  to  a  new, 
venture,  factories  have  been  established  in  different 
parts  of  the  country  which  make  it  their  business  to  take 
up  a  new  mechanism  and  to  make  all  the  tools,  draw- 
ings, molds  and  special  machines  that  may  be  required 


BUSINESS  ORGANIZATION 

for  turning  out  a  new  product.  They  will  continue  the 
manufacture  until  the  product  has  been  standardized 
and  until  there  has  been  a  fair  test  made  of  the  public 
demand  for  the  output ;  then  the  company  will  turn  over 
all  the  tools,  machines,  etc.,  to  the  new  company,  which 
in  all  likelihood  has  erected  its  building  in  the  meantime. 

83.  Comparative  advantages  of  the  city  and  coun- 
try.— A  manufacturer  should  not  decide  the  question  of 
location  for  a  new  plant  until  after  he  has  investigated 
the  various  advantages  of  the  city,  the  suburb,  or  some 
locality  which  has  probably  offered  inducements  in  the 
nature  of  a  bonus,  or  freedom  from  taxation  for  a  period 
of  years. /The  city  offers  advantages  in  the  way  of 
labor  supply.  To  many  employers  this  is  the  prime 
consideration.  They  desire  to  be  independent  of  the 
laborers.  If  a  man  is  discharged  or  leaves,  the  manager 
knows  there  will  be  a  long  list,  or  perhaps  a  line  at  the 
gate  to  select  from  the  next  morning.  Then,  too,  the 
city  with  its  large  number  of  interests  can  be  counted 
upon  to  act  as  a  store  house  from  which  fuel  or  supplies 
can  be  drawn  at  a  moment's  notice.  On  the  other  hand, 
the  laborers  of  the  city  are  often  strongly  organized  into 
unions,  and  wages  are  kept  high  by  the  competition  for 
labor  by  many  other  firms.  The  factory  which  pays 
the  best  wages  gets  the  best  help.  There  are  many  ex- 
amples of  successful  firms  that  have  established  them- 
selves in  great  cities.  The  Baldwin  Locomotive  Works 
at  Philadelphia  is  an  illustration  of  this  type. 

The  advantages  of  the  small  town  or  the  country  are 
in  direct  contrast  to  those  of  the  city.  /Larger  and  more 
commodious  works  can  be  built;  and  "welfare"  work 
can  be  adopted  on  a  more  extensive  scale./  The  country, 
with  its  rural  surroundings,  offers  many  opportuni- 
ties in  these  directions.  Labor  is  generally  cheaper,  as 


MANUFACTURING  INDUSTRIES  133 

many  people  prefer  the  country  to  the  city  with  its 
crowded  and  unhealthful  tenements.  /But  a  strictly 
rural  location  means  that  the  company  must  provide 
housing  accommodations  for  its  working  people ;  and 
thus  many  administrative  difficulties  arise.  The  posi- 
tion of  the  factory  surrounded  by  its  own  work  people 
puts  the  management  in  a  hard  place  when  labor  dis- 
putes arise.  The  discharged  man  has  the  sympathies 
of  his  neighbors.  It  is  hard  to  evict  a  person,  as  such  a 
course  leads  to  scandal.  The  Pullman  strike  of  1894, 
under  such  conditions,  led  to  a  lowering  of  wages  but 
not  of  rents,  and  the  scandal  did  much  to  injure  the  en- 
terprise. 

As  the  population  increases  and  the  community  grows 
older,  the  company  will  have  to  meet  educational  prob- 
lems. Not  only  elementary  schools  but  high  schools  will 
be  demanded.  Social  and  religious  questions  and  dis- 
putes will  affect  the  factory  management;  for  the  em- 
ployes will  not  be  of  the  same  social  ranks  or  beliefs; 
and  last,  but  not  least,  political  capital  will  continually 
be  made  of  the  company's  position,  and  demagogues 
will  never  fail  to  decry  it  as  a  great  oppressor,  which 
"owns  the  men  body  and  soul."  Bickerings  of  this  na- 
ture disgust  many  of  the  better  men  and  they  go  to  the 
city  where  the  advantages  of  city  life  can  be  obtained, 
and  with  it,  independence.  In  England,  the  best  ex- 
ample of  recent  years  of  the  tendency  to  desert  the  city 
for  the  rural  conditions  is  that  of  the  printing  plants; 
but  it  is  a  well-known  fact  that  when  a  printer  who  has 
a  country  workshop  wants  the  best  work  done  he  sends 
to  London. 

Of  course  these  considerations  apply  only  in  cases 
where  a  company  has  a  choice  of  location  and  is  not 
bound  by  circumstances  to  build  in  some  specified  place. 


134  BUSINESS  ORGANIZATION 

In  England  it  is  not  a  matter  of  choice,  and  as  America 
becomes  older,  the  freedom  in  this  respect  will  become 
narrower.  Frequently,  in  both  England  and  the 
United  States,  the  choice  of  location  is  restricted  be- 
cause the  new  works  are  the  result  of  reorganization 
rather  than  new  ventures.  The  old  works  may  abandon 
the  old  site  entirely  and  move  to  the  country  or  suburb, 
but  frequently  old  associations  and  habits  of  manage- 
ment overcome  the  considerations  of  economy  offered 
by  removal,  and  although  they  suffer  from  a  manufac- 
turing point  of  view,  they  seem  successful  in  carrying 
out  their  policy.  But  this  is  generally  a  victory  of  mer- 
cantile management  over  the  technical  considerations. 

These  works  are  of  two  kinds.  (1)  There  is 
the  storied  type  where  the  work  is  carried  on 
in  an  old  building  of  three  or  more  stories,  which 
was  not  made  for  manufacturing  purposes,  but  was 
turned  into  a  factory  through  change  of  circumstances. 
Then,  too,  these  old  buildings  may  have  been  erected 
when  manufacturing  conditions  were  very  different 
from  those  of  the  present  time.  (2)  There  is  the  scat- 
tered type,  which  owes  its  development  to  opportunities 
to  build  around  a  lot  or  yard  or  garden.  When  the 
limit  was  reached  in  this  direction,  new  works  were  per- 
haps desired  and  the  plant  was  extended  by  the  use  of 
property  across  the  street  for  the  purpose.  Both  types 
are  more  common  in  England  than  in  the  United  States, 
yet  they  are  by  no  means  rare  in  the  large  older  cities  of 
America. 

84.  Design  of  a  modern  plant. — The  modern  plant  is 
not  built  along  the  lines  of  the  above  type,  which  was 
often  so  scattered  that  one  department  might  be  in  sev- 
eral buildings.  To-day  plants  are  built  so  they  can  ex- 
pand and  still  retain  the  principle  of  unity  embodied  in 


MANUFACTURING  INDUSTRIES  135 

the  small  plant.  The  plan  is  to  bring  in  the  raw  ma- 
terial and  let  it  pass  through  the  factory  without 
doubling  on  itself  during  the  successive  processes  of 
manufacture.  The  extent  of  the  plant  will  be  the  result 
of  many  considerations,  the  size  of  the  output,  etc.  The 
allotment  of  floor  space  will  be  made  after  a  considera- 
tion of  the  kind  and  number  of  buildings  to  be  erected 
upon  a  given  space.  In  regard  to  the  question  of  the 
subdivision  of  the  floor  space  a  compromise  is  often 
made  in  the  case  of  engineering  firms  by  adopting  the 
alcove  or  side  aisle  arrangement,  whereby  the  big  things 
are  located  in  the  center,  and  on  the  sides  the  subsidiary 
processes  are  carried  on  instead  of  in  separate  buildings. 

In  the  lay-out  of  the  plant  the  proper  balancing  of 
the  various  departments  is  very  essential.  By  this  is 
meant  that  the  machines  in  one  department  should  not 
be  so  numerous  as  to  produce  more  rapidly  than  the 
other  departments  can  dispose  of  its  product.  It  is 
only  after  a  very  careful  analysis  that  the  proper  size 
of  rooms  and  balancing  of  the  different  departments 
can  be  determined  before  hand.  Yet  it  should  be  done 
in  order  to  avoid  a  subsequent  rearrangement  of  the 
whole  interior.  The  older  plan  of  making  all  the  rooms 
in  the  factory  of  about  the  same  size  has  proved  disas- 
trous so  many  times  after  the  factory  was  started,  that 
few  men  would  think  of  following  this  method  to-day. 

An  example  of  the  old  method  is  instanced  in  the 
case  of  a  certain  watch  factory.  The  arrangement  pro- 
vided for  the  complete  making  of  a  watch  of  a  certain 
size  in  one  room,  and  of  other  sizes  in  another  room. 
The  operatives  in  each  room  became  expert  in  turning 
out  one  particular  style  and  size  of  watch.  Failing  to 
make  this  plan  pay,  the  factory  was  put  into  the  hands 
of  a  new  manager.  He  rearranged  the  machinery 


136  BUSINESS  ORGANIZATION 

> 

throughout  the  whole  factory.  All  the  machinery  do- 
ing the  same  kind  of  work  was  put  into  one  room.  For 
example,  all  drilling  machines  were  put  into  one  place, 
all  stamping  machines  into  another,  etc. 

This  brought  about  a  new  kind  of  specialization 
among  the  operatives.  Instead  of  turning  out  a  par- 
ticular kind  of  watch,  each  operative  became  a  special- 
ist in  one  kind  of  process.  It  also  brought  about  a  new 
alignment  of  work.  Where  there  had  been  one  man  in 
each  room  who  did  the  stamping  for  the  machines  in 
that  room,  now  all  the  stamping  machines  were  grouped 
together  and  it  was  found  that  one  man  could  attend  to 
four  machines.  A  little  later  it  was  discovered  that  a 
girl  could  do  the  same  work  as  well  as  a  man,  and  indeed 
it  was  not  long  before  one  girl  was  attending  to  six 
machines  with  less  effort  than  was  formerly  made  by 
the  man  with  four  machines.  This  was  accomplished 
by  putting  a  chair  on  wheels  in  front  of  a  row  of  ma- 
chines, so  that  the  girl  could  be  seated  and  still  go  from 
one  machine  to  another  by  pushing  the  chair. 

85.  Transmission  of  power.  Tool  room.  Store 
rooms. — If  the  factory  uses  electrical  power  it  is  consid- 
ered the  best  arrangement  to  group  the  light  machinery 
together  and  put  the  heavy  machines  by  themselves. 
The  latter  should  be  placed  on  the  ground  floor,  where 
the  heavy  product  can  be  brought  in.  The  lighter  ma- 
chines can  be  put  on  the  upper  floors. 

The  plan  of  the  factory  should  provide  for  a  tool 
room.  Tools  should  not  be  left  lying  around  to  be  lost 
or  stolen.  This  room  ought  to  be  placed  so  that  tools 
can  be  easily  supplied  to  the  operative  without  loss  of 
time.  It  should  not  be  necessary  for  him  to  leave  his 
machine,  but  by  pressing  a  button  a  boy  from  the  tool- 
room can  be  summoned  with  the  required  tool.  Me- 


MANUFACTURING  INDUSTRIES  137 

chanics  do  not  as  a  rule  supply  their  own  tools.  This 
is  done  by  the  factory  which  keeps  a  carefully  indexed 
record  of  every  tool,  each  man  being  charged  with  it 
until  he  returns  the  tool  to  its  proper  place. 

Storerooms  should  be  arranged  for  in  the  preliminary 
plans.  Three  classes  of  storerooms  are  desirable,  each 
to  care  for  the  product  in  its  three  principal  stages  of 
manufacture — the  raw  material,  the  finished  wares  and 
the  partially  completed  goods.  Rooms  for  housing  the 
partially  completed  goods  may  be  called  departmental 
store  rooms.  Their  chief  function  is  to  provide  a  place 
for  the  inspection  of  the  semi-finished  product  of  each 
department  before  it  goes  on  to  the  next.  A  system  of 
inspection  of  this  kind  provides  for  the  inspecting  of  the 
goods  before  they  are  fully  completed  and  ready  for  the 
shipping  room.  The  work  of  each  man  is  thus  in- 
spected as  it  passes  from  one  to  another,  and  when  some 
piece  of  work  is  found  to  be  defective,  the  operations 
upon  it  can  be  stopped  until  it  is  remedied ;  or  if  the  de- 
fect is  a  fatal  one  it  can  be  cast  out  altogether.  This  is 
an  important  consideration,  for  if  the  inspection  were 
delayed  until  the  article  was  finished,  all  the  operations 
after  the  defect  occurred  would  be  a  pure  loss. 

86.  Standard  equipment. — While  the  subject  of  tools 
and  their  arrangement  is  under  consideration,  it  may 
be  well  to  mention  another  essential  that  should  be  pro- 
vided for  in  the  lay-out  of  a  plant.  Frequently  there 
will  be  found  in  a  machine  shop  a  number  of  similar 
machines  which  differ  from  each  other  only  in  non- 
essential  parts,  as  they  are  products  of  different  fac- 
tories. Provided  these  machines  all  do  the  same  work 
there  is  a  saving  in  expense  if  they  are  all  alike.  For 
example,  lathes  are  nearly  a  standard  product,  but 
every  manufacturer  has  his  own  ideas  about  the  size 


138  BUSINESS  ORGANIZATION 

and  style  of  screws,  or  the  size  of  the  countershaft, 
etc.  A  shop  which  has  a  half  dozen  lathes  -  from  as 
many  different  firms  must  keep  in  stock  one  or  two 
extra  parts  to  provide  against  breakage  for  each  lathe. 
By  having  standard  machines  of  the  same  make  in  use, 
the  cost  for  carrying  repair  parts  will  be  lessened  and 
often  much  time  saved  through  avoiding  shut-downs. 

It  might  be  added  also  that  the  substantial  tool  is  the 
most  economical  in  the  long  run.  The  light  and  cheap 
tool  will  produce  inaccurate  work  and  thus  destroy  the 
very  purpose  for  which  the  product  is  designed.  The 
appointment  of  an  expert  purchasing  agent  before  the 
factory  is  fitted  out,  is  almost  as  essential  as  planning 
the  design  of  the  floor  space  and  transportation.  He 
will  know  the  difference  between  a  cheap  machine  cost- 
ing a  small  sum  and  a  cheap  machine  in  another  sense, 
which,  while  costing  a  little  larger  sum  at  the  beginning, 
will  more  than  make  up  for  the  extra  cost  by  producing 
better  goods  and  lasting  longer  in  the  service. 

87.  Transportation  within  the  plant. — As  the  original 
location  of  the  plant  is  largely  a  question  of  economical 
transportation,  so  the  location  of  the  machines  within  the 
plant  is  largely  determined  by  transportation  require- 
ments. The  work  should  progress  in  one  direction  con- 
tinuously and  with  as  little  handling  as  possible. 

Transportation  facilities  at  the  plant  may  be  divided 
into  external  and  internal.  The  buildings  should  be  so 
arranged  as  to  facilitate  the  bringing  in  and  taking 
away  of  the  goods,  while  the  internal  lay-out  should  be 
such  as  to  keep  the  goods  moving  in  one  direction  in 
harmony  with  the  outside  transportation  arrangement. 

The  following  chart  will  illustrate  the  arrangement 
of  buildings  for  carrying  out  the  scheme  of  continuous 
movement  in  the  same  direction,  and  the  logical  ar- 


MANUFACTURING  INDUSTRIES 


139 


rangement  of  the  departments  in  order  that  the  manu- 
facturing- process  may  harmonize  with  the  scheme  of 


RAILWAY  TRACKS 


POURING 

FITTING 

x 

PRIMING 

. 

MOULDING 
A 

> 

a: 

Q 

BENDING 

h- 

2 

CO 

BODY  MAKING 

s 

III 

H 

CORE  MAKING 

8 

Lu 

PUNCHING 

^ 
O 

< 

SHAPING 

z 

tu 

Q. 

CUPOLA 

DROP  FORGING 

CO 

ROUGH  CUTTING 

< 
O 

Canal 

t 

t 

t 

ft 

PIG  IRON 

BAR  IRON 

LUMBER 

transportation  in  converging  upon  the  shipping  and 
loading  side  of  the  works. 

As  the  raw  materials  arrive  by  way  of  the  canal  or 


140  BUSINESS  ORGANIZATION 

other  water  conveyance  they  are  taken  into  the  store 
houses.  Then  they  pass  through  the  various  processes 
in  the  foundry,  in  the  smithy,  and  in  the  carpenter  shop. 
The  products  of  the  foundry  and  smithy  meet  in  the 
machine  shop  where  the  manufacturing  processes  are 
taken  up  with  the  same  progressive  movement  toward 
the  loading  side  of  the  plant.  The  machining  processes 
completed,  the  product  passes  to  the  assembling  room, 
where  it  meets  the  wooden  parts  all  ready  to  be  put 
together.  Other  processes  here  turn  out  the  article  com- 
pleted and  ready  for  the  storehouse  and  shipment. 

This  is  one  arrangement  which  of  course  would  be 
modified  to  meet  conditions.  The  same  logical  arrange- 
ment, however,  would  not  change,  for  the  continuous 
forward  movement  without  any  retracing  of  steps,  is 
the  basis  of  scientific  organization.  Even  in  a  city 
where  space  is  scarce  and  the  arrangement  of  the  plant 
is  vertical  instead  of  being  horizontal,  the  logical  order 
of  processing  would  be  the  same.  Here  the  raw  mate- 
rial comes  in  down  stairs  and  proceeds  upward  until  it 
comes  out  a  finished  good  at  the  top.  Other  arrange- 
ments are  discussed  in  Chapter  VIII  of  Part  II. 

For  the  transportation  of  the  product  through  the 
plant  it  is  customary  to  have  narrow  gauge  railways 
connected  with  the  track  that  brings  the  product  to  the 
plant.  Various  kinds  of  trucks  convey  the  product 
from  one  department  to  another.1  Frequently  there  are 
overhead  trolleys  which  obviate  the  necessity  of  having 

1  Both  switches  and  turntables  are  used,  but  the  latter  are  liable  to 
get  out  of  order.  They  are  cheaper,  however.  Some  experts  advise  the 
use  of  large  wheels,  claiming  that  the  trucks  rsn  more  easily.  In  many 
cases  the  overhead  trolley  with  the  pneumatic  li^st  is  a  very  profitable 
combination,  especially  if  heavy  materials  are  to  be  loaded  or  unloaded. 
Such  an  arrangement  can  be  operated  either  by  hand,  compressed  air  or 
electricity.  The  system  of  transportation  also  provides  for  carrying  away 
the  waste  product  from  every  machine.  This  waste  is  carefully  weighed  and 


MANUFACTURING  INDUSTRIES  141 

a  man  to  load  and  unload  the  truck.  When  a  truck 
comes  to  a  man  at  a  machine  he  takes  out  his  material, 
and  when  his  work  upon  it  is  completed  another  truck 
comes  alongside  and  carries  the  product  to  the  next  man. 
This  system  saves  much  time  and  work  in  the  handling 
of  the  material. 

The  transportation  of  small  products  is  often  pro- 
vided for  by  the  use  of  traveling  belts.  As  the  product 
passes  along  it  can  be  taken  off  by  the  men  at  the  ma- 
chines ;  as  each  man  completes  his  work  upon  it,  the  belt 
carries  it  on  to  the  next.  This  is  a  favorite  method  in 
the  manufacture  of  food  products. 

88.  Conveyance  of  internal  information. — Transpor- 
tation is  not  confined  to  the  conveying  of  materials 
alone.  The  question  of  carrying  intelligence  is  one  that 
must  be  solved  also.  There  is  no  time  which  the  average 
business  man  begrudges  more  than  that  lost  in  getting 
information  or  conveying  it  to  his  subordinates  and  oth- 
ers. The  messenger  service  is  the  commonest  form  in 
large  concerns,  although  many  firms  use  all  the  familiar 
means,  such  as  the  telephone  and  whistling  tubes.  One 
unique  method  to  call  the  superintendent  or  some  other 
official,  is  to  blow  the  whistle,  which  can  be  heard  all 
over  a  large  plant,  and  by  a  schedule  of  signals — one 
whistle  for  the  manager,  two  for  the  foreman,  and  so 
on — much  time  can  be  saved  in  calling  these  men  when 
urgently  wanted. 

In  some  factories  the  messenger  service  provides  for 
the  sending  of  a  boy  from  one  department  to  another 
every  hour  or  half  hour.  He  takes  messages  and  in- 
quiries from  one  foreman  to  another  on  one  trip,  and 
brings  back  the  answers  on  his  return.  This  makes  it 

a  record  kept  of  it.     In  this  way  the  efficiency  of  the  man  is  determined, 
for  it  can  be  found  out  whether  he  is  wasting  the  product  or  not. 


BUSINESS  ORGANIZATION 

unnecessary  for  the  foreman  to  leave  his  department  in 
search  of  information. 

89.  Summary. — In  summarizing  the  points  included 
in  the  preliminary  determination  of  the  location  and 
design  of  the  plant,  it  will  be  seen  that  the  first  problem 
to  attack  is  the  determination  of  the  nature  of  the  pro- 
duct to  be  manufactured,  and  to  classify  the  various 
raw  materials  that  are  to  be  used.  When  this  has 
been  decided  upon,  and  when  it  is  known  how  the  pro- 
cesses necessary  in  manufacturing  the  article  follow 
each  other  in  their  natural  sequence,  the  various  de- 
partments may  be  planned  and  the  floor  space  as- 
signed to  each  department.  Finally,  after  it  has 
been  settled  how  the  space  is  to  be  equipped  with  ma- 
chinery for  the  manufacturing  processes  and  the 
transportation  systems,  the  walls  of  the  building  may 
be  erected. 

The  basis  for  the  organization  has  now  been  estab- 
lished. There  remains  the  classification  of  the  various 
activities  as  they  are  related  to  the  fundamental  princi- 
ples. The  first  function  that  naturally  differentiates 
itself  is  that  of  administration:  the  second,  that  of 
manufacture;  and  the  third,  the  commercial  activities 
connected  with  the  production  and  the  disposal  of  the 
product. /  The  various  systems  of  accounting  and  of 
gathering  information  will  naturally  be  influenced  by  a 
consideration  of  these  fundamental  divisions. 

The  following  outline  will  show  the  various  prelimin- 
aries in  the  procedure  of  preparing  to  manufacture  a 
certain  product: 

1.  The  plans.  These  include  the  exact  determining 
of  whatever  is  necessary  for  efficient  service  in  the  pro- 
ductive operations,  and  their  most  effective  arrange- 
ment. 


MANUFACTURING  INDUSTRIES  143 

2.  The  provision  of  the  various  things  necessary  in 
the  production  of  the  product. 

a.  Buildings    which    are    adapted   to    the    desired 

operations    or    the    manufacture    of    certain 
goods. 

b.  Appropriate  machinery  for  this  manufacture. 

c.  A  power  plant  to  drive  the  machinery  and  to 

heat  and  light  the  factory. 

d.  Machines  and  tools  which  are  needed  in  the  me- 

chanical operations  or  by  the  workmen. 

e.  Other  apparatus  and  any  other  appliances  be- 

sides machinery  and  tools. 

f.  Patterns  or  designs  or  models  to  be  used  as 

guides  in  the  manufacture  of  the  goods. 

3.  The  operation  of  the  power  plant  and  the  machin- 
ery. 


CHAPTER  IX 

DEPARTMENTAL  FUNCTIONS  AND  ORGANIZATION 

90.  Basis  of  departmental  divisions. — The  previous 
chapter  dealt  with  the  various  factors  to  be  considered  in 
laying  out  a  plant.     It  is  presumed  that  the  incorporat- 
ing of  the  business  under  state  laws,  the  financing  of 
the  enterprise  and  the  duties  of  officers  pertaining  thereto 
have  also  been  properly  attended  to.     It  is  now  neces- 
sary to  determine  upon  what  basis  the  electing  and  ap- 
pointing of  the  various  authorities  shall  be  established  so 
that  the  duties  of  each  will  correlate  and  work  in  har- 
mony with  the  others.     If  friction  between  the  heads  of 
departments  is  to  be  reduced  to  a  minimum,  it  must  be 
done  by  a  scientific  division  of  authorities  based  on  busi- 
ness functions.     Cooperation  is  thus  induced  naturally. 

The  question  of  selecting  the  men  for  the  positions  of 
authority  resolves  itself  to  a  discrimination  between 
them  according  to  their  natural  or  trained  abilities  to  di- 
rect the  activities  pertaining  to  a  particular  business 
function.  In  order  to  make  the  proper  division  of  a 
manufacturing  business  into  departments,  a  chart  dis- 
playing the  geographical  arrangement  such  as  the  one 
shown  in  the  last  chapter  is  often  used.  Another  kind 
of  chart  is  sometimes  used  by  systematizers  to  display 
the  various  primary  functions  of  the  business,  and  to 
show  their  connections.  For  an  example  of  a  chart  of 
this  kind  and  a  further  discussion  of  departmental  rela- 
tions the  reader  may  turn  to  Chapter  II  of  Part  II. 

91.  Prime  functions  of  a  manufacturing  business. — 

144 


DEPARTMENTAL  ORGANIZATION  145 

The  prime  functions  of  a  manufacturing  business  are 
discussed  under  the  following  twelve  heads : 

1.  CONTROLLING   THE   SUPPLY   OF   STOCK   USED   IN 

MANUFACTURING.       (RAW  MATERIAL.)       This  function  is 

divided  into 

(a)  A  general  central  control  (main  office). 

(b)  Territorial  control    (branch  or  divisional  of- 
fices). 

(c)  Local  control  (sub-companies). 

The  order  of  authority  is  from  the  main  office  down. 
The  sub-companies  are  organized  individually  to  secure 
stock  by  mining,  lumbering,  local  buying  or  other  means 
and  then  to  ship  the  same  to  the  factory. 

2.  PURCHASING  OPERATING  MATERIALS  AND  SUPPLIES. 
(a)   Buying. 

(1)  Contracting. 

(2)  Direct  purchasing. 
i(b)    Ordering. 

(1)  Receiving  requisitions. 

(2)  Approving  requisitions. 

(3)  Placing  orders  to  fill  requisitions, 
(c)   Approval  of  invoices. 

The  department  is  controlled  by  a  manager  or  general 
purchasing  agent,  who  is  assisted  by  special  buyers. 
These  have  charge  of  certain  classes  of  material.  The 
buying  is  done  in  some  cases  by  making  time  and  ap- 
proximate quantity  contracts — often  by  a  purchasing 
committee — with  the  sellers.  Most  of  the  small  pur- 
chases which  are  in  great  variety  are  made  directly  after 
securing  competitive  prices  with  the  individual.  The 
receiving  of  requisitions  includes  the  filing  of  them  and 
the  acknowledgment  of  their  receipt.  The  approving 
of  requisitions  involves  the  checking  of  the  same,  if 

made  to  replenish  stores,  against  present  inventory,  past 
n—io 


146  BUSINESS  ORGANIZATION 

purchases  and  consumption,  and  probable  future  needs. 
But  if  it  is  made  to  obtain  material  of  a  special  nature, 
or  for  a  special  job  or  order  for  goods,  then  the  checking 
is  against  the  works  order  or  against  the  need  as  stated 
by  the  proper  foreman.  The  object  of  this  is  to  prove 
the  business  necessity  of  the  filing  of  the  said  requisi- 
tion; it  also  reduces  the  inventory  of  materials  at  the 
works. 

The  placing  of  orders  to  fill  approved  requisitions  is, 
for  materials  under  contract,  a  matter  of  routine,  but 
for  individual  and  special  material  not  under  a  sup- 
plier's contract  it  is  a  matter  for  the  manager  or  one  of 
his  assistants. 

3.  TESTING.  -  The  functions  of  testing  are  to  estab- 
lish standards  according  to  which  formal  specifications 
or  requirements  are  set  and  must  be  met  by  suppliers  or 
workers.     The  testing  department  examines  and  com- 
pares the  quality  of  materials  received  at  the  factory  and 
the  quality  of  the  products  of  the  factory,  with  ap- 
proved   standards.     This    function    often    extends    to 
making  trials  or  tests  of  equipment,  such  as  machinery, 
boilers,   engines,   apparatus,    formulae   or   methods   of 
manufacture.     As  a  result  new  and  improved  processes 
of  manufacture,  or  new  or  better  machinery  and  tools 
are  developed.     The  department  of  testing  makes  spe- 
cial or  periodical  reports  to  the  manufacturing,  purchas- 
ing or  other  departments  which  embody  the  results  of 
its  trials  or  tests,  and  advises  upon  the  acceptance  or 
rejection  or  the  grading  of  materials  and  products. 

4.  EMPLOYING.     This  function  embraces  the  super- 
vision in  general  of  all  matters  pertaining  to  employes 
of  the  factory  other  than  the  direction  of  their  produc- 
tive activities.     These  matters  embrace: 

(a)   Hiring.     This  is  done  by  an  employment  bureau 


DEPARTMENTAL  ORGANIZATION  147 

which  receives  and  files  applications  for  work,  and  en- 
gages laborers  of  the  best  ability  and  character  obtain- 
able for  the  foremen. 

(b)  Recording.     The  bureau  records  the  main  facts 
pertaining  to  each  employe  as  a  person  and  a  worker. 
Data  is  taken  regarding  name,  age,  experience,  refer- 
ences, occupations,  rates  of  pay,  dates  of  starting  and 
leaving,  social  and  physical  characteristics,  and  conduct 
and  efficiency  as  an  employe. 

(c)  Instructing.     This  pertains  to  the  duties  that  the 
worker  is  to  perform  in  order  that  he  may  secure  profi- 
ciency and  efficiency  as  soon  as  possible,  and  that  losses 
through  accidents  and  waste  of  material  may  be  reduced 
to  a  minimum.     The  bureau  sometimes  supervises  the 
instruction  but  most  commonly  the  foremen  or  func- 
tional bosses  assume  the  responsibility. 

(d)  Rating.     Wages  are  fixed  by  the  bureau  or  un- 
der their  supervision  on  the  basis  of  the  specific  occupa- 
tion, by  specific  agreement  between  employe  and  fore- 
man or  in  accordance  with  whatever  special  system  of 
wages  the  factory  may  have  adopted,  such  as  piece  work 
or  premium  systems. 

5.  SELLING.  The  function  of  selling  embraces  the 
securing  of  orders,  estimating,  ordering  and  advertis- 
ing. 

(a)  Selling — i.  e.,  securing  of  orders  from  customers 
for  production  and  shipment  to  them  at  specified  times 
of  certain  goods  at  agreed  prices  under  stated  terms.1 

(b)  Estimating — i.  e.,  valuing  by  calculation  and  ex- 
pert appraisal  the  cost  of  producing  specific  articles 
desired  by  customers.     This  function  comprehends  the 

1  The  reader's  attention  is  especially  directed  to  the  chapter  on  sales  in 
the  volume  on  COMMERCIAL  LAW,  where  the  legal  requirement  of  the  stat- 
ute of  fraud  with  regard  to  the  sales  exceeding  the  amount  of  $50  is 
treated. 


148  BUSINESS  ORGANIZATION 

fixing  of  a  price  at  which  the  goods  can  be  sold  at  a 
profit. 

(c)  Ordering — i.  e.,  sending  a  formal  statement  to 
the  manufacturing  department  of  the  customer's  ac- 
cepted request  for  goods,  and  the  following  of  it  to  see 
that  the  order  is  filled. 

The  procedure  is  as  follows : 

(1)  Receiving  from  customers  the  requests  or  or- 
ders in  various  forms. 

(2)  Transforming  and  copying  same  to  and  on  a 
standard  form. 

(3)  Filing  copies. 

(4)  Forwarding  the  orders  to  the  manufacturer's 
department. 

The  various  forms  of  orders  are: 

(1)  Contracts  covering  a  period  of  time  or  a  cer- 
tain quantity. 

(2)  Requisitions  on  contract  which  may  be  periodi- 
cal or  irregular. 

(3)  Transient  or  individual  orders  filled  generally 
at  one  time. 

(d)  Advertising.     The    giving    of    information    to 
customers,  the  trade  and  the  public,  regarding  the  pro- 
ducts of  the  company,  in  order  to  secure  orders. 

The  selling  department  is  managed  by  a  manager  of 
sales,  aided  by  assistant  managers,  each  of  whom  is  in 
charge  of  a  certain  class  of  goods  and  is  at  the  head  of  a 
specialized  division  of  sales.  The  operations  are  con- 
ducted through  the  main  office.  The  branch  offices  are 
managed  by  sales  agents.  These  agents  have  control, 
subject  to  the  direction  of  both  the  manager  and  the 
assistant  managers,  of  the  company's  business  with  the 
customers  within  a  certain  territory. 


DEPARTMENTAL  ORGANIZATION  149 

6.  WAREHOUSING.  This  function  includes  the  stor- 
ing of  goods. 

(a)  The  storing  of  parts  or  partially  finished  articles 
as  they  are  received  from  the  foremen  of  certain  depart- 
ments but  which  will  be  required  later  on  in  other  de- 
partments. 

(b)  The  storing  of  finished  goods  which  are  delivered 
to  the  warehouse  for  immediate  or  subsequent  shipment 
to  customers. 

A  system  of  checking  and  inspection  may  accompany 
the  function  of  warehousing.  The  partly  finished 
goods  are  checked  against  production  orders  and  normal 
requirements  and  they  are  accounted  for  in  a  similar 
manner  to  stores.  The  system  of  inspection  may  fol- 
low the  goods  into  the  intermediate  store  rooms. 

The  finished  goods  are  located,  inspected,  checked 
against  orders,  packed  and  shipped  in  accordance  with 
shipping  orders  and  routing  instructions.  There  are 
many  devices  whereby  proper  stocks  consistent  with  the 
requirements  of  the  sales  department  are  maintained. 
7  7.  TRANSPORTING.  This  function  pertains  to  the  di- 
recting and  the  forwarding  of  goods. 

(a)    The  department  provides: 

(1)  Cars  or  boats. 

(2)  Unloading,  transferring  or  storing  facilities 
and  equipment,  including  the  necessary  help. 

(3)  Trucks  and  wagons  for  delivery  of  goods. 

(4)  Routing  instructions  to  shipping  clerks  and 
railroad  agents. 

(5)  The  department  is  responsible  for  the  safe 
and  prompt  delivery  of  goods  at  the  proper 
destination. 

(6)  In   case   of   unsatisfactory   service   it   makes 


150  BUSINESS  ORGANIZATION 

complaints  and  pushes  the  claims  against  the 
carrier. 

(7)  It  endeavors  to  secure  the  best  terms  practica- 
ble for  special  service,  and  at  all  times  to  give 
the  company  the  benefit  of  the  lowest  trans- 
portation rates  in  forwarding  goods. 

(8)  The  department  approves  all  bills  from  trans- 
portation companies. 

(9)  In  general  the  department  controls  all  deal- 
ings between  the  company  and  all  transporta- 
tion, lighterage,  steamship,  storage  and  truck- 
ing companies  which  handle  the  output  of  the 
company,  or  which  ship  the  raw  and  operating 
materials  to  the  works. 

8.  MAINTENANCE.*    This  covers  the  upkeep  of  the 
property  including  repairs  and  renewals,  both  ordinary 
and  extraordinary. 

(a)  Buildings  and  grounds. 

(b)  Machinery,  tools  and  apparatus. 

(c)  Boilers,  engines  and  power  generators  of  any 
kind. 

9.  IMPROVEMENT.  -  This  department  controls  the  re- 
placing of  existing  buildings  or  equipment  with  im- 
proved types  and  greater  relative  efficiency.     This  work 
is  done  in  connection  with  the  two  departments  of  main- 
tenance and  of  manufacture.     The  latter  may  request 
an  equipment  which  will  enable  them  to  reduce  the  cost 
of  production  so  as  to  meet  competition,  or  increase 
profits.     The  work  is  similar  to  maintenance  and  yet  it 
is  of  such  a  nature  that  it  cannot  be  chargeable  directly, 
at  least,  at  the  time,  to  the  expense  of  operating  the  fac- 
tory.    The  doing  of  this  work  is  a  matter  of  policy, 
based  on  a  judgment  as  to  the  relative  profit  before  and 
after  the  change.     Such  work  is  often  limited  by  the 


DEPARTMENTAL  ORGANIZATION  151 

financial  ability  of  the  company  to  incur  the  expense  or 
by  the  wishes  of  the  stockholders  for  dividends  instead 
of  an  improved  plant. 

10.  CONSTRUCTION. — This  covers  the  work  of  provid- 
ing the  factory  with  buildings  and  equipment  to  start 
with  and  then  of  providing  properly  constructed,  ar- 
ranged and  equipped  buildings  of  various  kinds  as  the 
business  grows.     This  department  may  be  complete  as 
a  creative  agency,  or  may  only  go  as  far  as  the  planning 
of  the  work  to  be  done.     The  functions  of  maintenance, 
improvement  and  construction  are  often  performed  by 
one  department,  sometimes  with  and  sometimes  without 
specialized  divisions. 

11.  EXECUTIVE.    The    function    of    financing    and 
planning  the  enterprise  is  given  to  the  executive  depart- 
ment. 

(a)  The  directors,  elected  by  stockholders. 

(b)  The  executive  committee. 

(c)  The  finance  committee. 

(d)  The  president. 

(e)  First  vice  president  or  general  manager. 

(f)  Experts. 

12.  ADMINISTRATIVE  DEPARTMENTS. 

(a)  Secretary. 

(b)  Treasury. 

(c)  Auditing. 

(d)  Accounting. 

(e)  Cost. 

(f)  Statistical. 

(g)  Real  Estate, 
(h)   Legal. 

The  various  types  of  organization  and  management, 
found  in  the  factories  of  the  same  and  of  different  in- 
dustries are  the  several  combinations  of  these  depart- 


152 


BUSINESS  ORGANIZATION 


ments  and  divisions.  The  general  plans  according  to 
which  various  manufacturing  operations  are  carried  on 
vary  considerably.  To  such  an  extent  is  this  true  that 
no  generalization  or  grouping  is  practicable  except  to  a 
limited  extent. 

The  following  list  of  activities  together  with  two  col- 
umns containing  descriptive  phrases  embody  the  princi- 
pal characteristics  embraced  in  any  scheme  of  organiza- 
tion. It  will  be  readily  seen  that  any  number  of  com- 
binations may  be  made.  For  example,  the  control  may 
be  exercised  by  the  owners,  but  under  a  system  of  man- 
agement which  depends  upon  the  local  branch  offices  for 
direct  supervision.  All  kinds  of  production  may  be 
combined  with  either  the  military  or  functional  systems 
of  direction,  etc.,  etc. 


Activity. 

1.  Control 

2.  Management 

3.  Superintendence 

4.  Output 

5.  Production 

6.  Processes 

7.  Business 

8.  Direction 

9.  Instruction 

10.  Employe's 

11.  Wages 

12.  Machinery 

13.  Development 

14.  Evolution 

15.  Growth 

16.  Methods 
IT.  Results 

18.  Conditions 

19.  Forms 


Plan  A. 


Plan  B. 


By  owners 

By  salaried  employes 

Local 

From  main  office 

Personal 

Impersonal 

Simple 

Complex 

Similar 

Varied 

Specialized 

Standardized 

Competitive 

Monopoly 

Military 

Functional 

Formal   (in  writing) 

Informal  (verbal) 

Organized,  i.  e. 

Unorganized 

(Labor  Unions) 

Piece  or  premium 

Daily  or  hourly  rates 

rates 

Hand 

Automatic 

Progressive 

Unprogressive 

Equal 

Unequal 

Systematic 

Unsystematic 

Effectual 

Ineffectual 

Profit 

Los* 

Past 

Present 

Actual 

Ideal 

92.  Duties  of  the  officers. — The  first  transaction  of  a 
business  nature,  as  we  have  seen,  is  the  selection  of  the 


DEPARTMENTAL  ORGANIZATION  153 

general  officers  of  the  company.  The  second  is,  logi- 
cally, the  choice  of  the  heads  of  the  three  divisions,  the 
executive,  the  selling  and  the  manufacturing.  The 
next  step  involves  the  selection  of  the  heads  for  each  di- 
vision and  the  departments  within  each  division.  If  the 
planning  of  the  organization  has  been  done  on  scientific 
lines  these  officers  will  settle  into  places,  the  principal  re- 
lations of  which  are  already  established  by  natural  con- 
ditions. 

However,  in  cases  where  the  activities  of  one  depart- 
ment come  in  contact  with  several  other  departments, 
the  practical  problem  of  drawing  a  line  that  will  define 
the  boundary  within  which  each  authority  shall  be  opera- 
tive is  a  very  difficult  one.  It  is  easy  to  see  that  the 
making  of  a  bolt  or  casting  relates  solely  to  the  machin- 
ery department,  but  the  keeping  of  the  factory  accounts 
is  not  so  easily  allocated  for  it  will  reach  into  the  selling, 
the  financial  and  executive  divisions. 

In  assigning  duties  to  the  various  officers,  it  is  not 
presumed  that  the  following  classifications  are  any- 
thing more  than  typical  cases. 

The  president  is  usually  the  general  supervising  of- 
ficer of  the  company.  He  presides  at  all  meetings  of 
the  stockholders  and  at  all  board  meetings ;  he  signs  all 
stock  certificates  and  sometimes  all  other  papers.  He 
may,  however,  be  chosen  merely  for  the  influence  of  his 
name,  in  which  case  he  is  only  a  figure-head,  and  a  man- 
aging director  is  appointed  to  do  the  work.  This  fig- 
ure-head type  is  rarer  in  the  United  States  than  in  Eu- 
rope. 

The  vice-president  simply  assumes  the  duties  of  the 
president  when  the  latter  is  absent,  unless  as  in  the  case 
of  the  railway  company,  he  takes  an  active  participa- 
tion in  the  business. 


154  BUSINESS  ORGANIZATION 

The  treasurer  has  custody  of  all  the  company  funds 
and  securities ;  he  has  charge  of  the  books,  and  he  over- 
sees the  vouchers  and  makes  up  the  financial  reports. 
In  case  there  is  an  auditor,  he  is  usually  under  the 
treasurer,  and  he  will  have  charge  of  the  company's 
books  and  will  check  up  all  accounts.  There  may  also 
be  a  comptroller  who  is  the  author  of  and  is  respon- 
sible for  questions  pertaining  to  general  accounting, 
cost  accounting,  systematization  and  so  on.  His  re- 
lation to  the  board  of  directors,  the  executive  commit- 
tee and  the  president  is  the  same  as  that  of  the  general 
manager  in  value  and  expression.  He  becomes  the  chief 
authority  in  all  questions  relating  to  organization. 

The  secretary  keeps  the  minutes  of  the  company;  he 
has  charge  of  the  company's  seal,  of  the  stock  certificate 
book  and  other  books;  he  looks  to  the  issuing,  transfer- 
ance  and  cancellation  of  the  company's  stock,  and  makes 
regular  reports. 

The  president,  vice-president,  secretary  and  treasurer 
are  directly  engaged  in  the  corporate  works  of  the  com- 
pany, except  in  the  case  of  the  treasurer  when  he  be- 
comes closely  associated  with  the  business  end  of  the 
factory  and  has  other  duties  than  those  connected  with 
the  corporate  finances. 

The  general  manager  is  in  charge  of  the  active  busi- 
ness of  selling  and  production.  Under  him  are  the 
heads  of  the  selling  and  manufacturing  divisions,  name- 
ly, the  sales  manager  and  the  factory  superintendent. 

From  our  point  of  view  the  general  manager  is  the 
chief  authority  in  the  organization.  He  is  "the  main 
spring  of  the  active  business  end  of  the  company."  He 
must  possess  certain  qualities,  such  as  a  strong  individu- 
ality, tact,  resourcefulness,  forcefulness,  and  at  the  same 


DEPARTMENTAL  ORGANIZATION  155 

time  he  must  have  a  knowledge  of  the  principals  of  or- 
ganization and  management.  On  him  devolves  the 
duty  of  selecting  his  subordinates,  either  personally,  if 
he  is  in  a  small  organization,  or  through  a  department  if 
he  is  in  a  large  one. 

93.  Military  method  of  organization. — There  are  two 
distinct  methods  of  directing  the  organization  below  the 
superintendent.  One  is  the  military  form  where  the 
manager  is  practically  the  general  of  the  army;  he  has 
under  him,  majors,  captains  and  lieutenants  who  carry 
out  his  commands.  Under  this  mode  of  directing,  the 
staff  must  be  trained  to  the  manager's  policy.  The 
advantages  and  disadvantages  of  this  type  of  organiza- 
tion from  the  manager's  standpoint  are  discussed  in 
Chapter  III  of  Part  II. 

Much  depends  upon  the  foreman's  capacity  to  grasp 
the  larger  problems  of  the  manager's  policy.  In  ar- 
ranging for  the  work  of  the  foreman,  it  has  been  de- 
termined of  late  that  the  same  process  shall  be  adopted 
in  developing  efficient  specialists  here  ^^ was  done  in 
the  case  of  the  common  laborer.  Each  foreman  instead 
of  having  charge  of  a  number  of  men  performing  many 
kinds  of  work,  has  now  one  thing  to  do.  This  was 
found  necessary  because  capable  foremen  of  the  broader 
type  were  difficult  to  find.  Such  general  work  demands 
of  a  foreman  that  he  have  a  fair  quota  of  brains,  some 
general  education,  fair  physical  health,  some  technical 
knowledge  and  some  manual  dexterity.  In  common 
with  all  administrative  positions,  his  position  calls  for 
tact  and  judgment.  He  must  have  a  knowledge  of  ev- 
ery part  of  the  product ;  he  must  see  that  the  workmen 
use  their  time  for  the  best  interests  of  the  company. 
He  must  be  a  "hustler"  himself  and  he  must  know  how 
fast  other  men  can  work.  His  duties  embrace  the  dis- 


156  BUSINESS  ORGANIZATION 

ciplining  of  the  man,  the  settling  of  disputes  between 
employes  and  the  adjusting  of  wages  in  case  of  absence, 
sickness  and  so  on. 

94.  Functional  method  of  organization. — The  difficul- 
ty of  getting  men  of  the  proper  caliber  to  take  charge  of 
the  departments  has  set  managers  to  devising  a  method 
or  organization  which  calls  for  less  ability  in  any  one 
foreman.  Accordingly  the  functional  method  of  or- 
ganization is  gradually  supplanting  the  military 
method.  In  an  organization  of  this  kind,  a  man  possess- 
ing three  or  four  of  the  above  named  qualifications  can 
be  trained  to  fill  the  position  of  a  functional  foreman. 
He  is  required  to  do  only  two  or  three  things,  and  in  the 
larger  shops  only  one  thing.  This  does  not  mean  that 
the  same  amount  of  ability,  taking  the  shop  as  a  whole, 
is  not  needed  under  the  functional  plan,  but  that  it  is  or- 
ganized differently.  All  the  ability  which  is  needed  for 
planning  is  concentrated  in  a  planning  department. 
The  shop  foremen  are  no  longer  expected  to  do  this. 
In  a  fairly  large  factory  there  will  be  four  foremen  in 
the  planning  department,  and  another  set  of  four  fore- 
men will  be  constantly  upon  the  floor  of  the  shop  in- 
structing and  helping  the  men.  This  division  of  labor 
causes  no  confusion,  for  the  workmen  never  see  the  fore- 
men in  the  planning  department.  This  illustrates  how 
all  the  functions  may  be  separated,  and  whereas  the  old 
system  provided  one  foreman  from  whom  a  group  of 
men  took  their  orders,  the  newer  method  permits  any 
workman  to  have  as  many  as  eight  bosses. 

Although  the  planning  department  is  fully  treated 
under  the  head  of  "Management,"  it  is  necessary  to  give 
here  a  brief  review  of  its  operations.  In  the  first  place 
the  men  in  this  department  are  of  a  higher  caliber  than 
the  trained  laborers  who  are  foremen  in  the  shop.  The 


DEPARTMENTAL    ORGANIZATION  157 

room  itself  is  planned  to  provide  for  a  series  of  panels 
and  pigeon  holes.  Each  section  of  a  panel  with  its  hook 
and  each  pigeon  hole  represents  a  particular  tool.  As 
the  records  of  work  come  into  the  planning  department 
from  the  departments  of  the  shop  they  are  divided  up 
and  put  into  the  different  pigeon  holes.  They  are  then 
ready  to  be  given  to  another  department  for  another 
operation.  One  man  is  in  charge  of  this  work  and  his 
duty  is  to  see  that  the  incoming  records  are  properly 
distributed  and  that  the  work  upon  the  machines  is 
kept  going  properly,  for  as  a  man  finishes  a  job  the 
planning  department  sees  that  he  is  supplied  with  an- 
other. This  man  in  the  planning  room  becomes  very  ex- 
pert in  filling  up  pigeon  holes  and  seeing  that  there  is 
work  in  them  all  the  time.  If  the  work  is  not  going  in 
and  out,  from  one  machine  to  another,  as  fast  as  planned, 
the  speed  boss,  of  whom  we  will  speak  later,  is  called  and 
asked  to  explain  the  cause  of  the  delay.  On  the  other 
hand,  if  any  of  the  pigeon  holes  become  congested  it 
means  that  some  machines  are  working  too  fast  or 
others  are  working  too  slowly  and  this  calls  for  an 
investigation. 

95.  Foremen  of  the  planning  department  and  their 
duties. — The  foremen  in  this  department  are  the    (1) 
route  clerk,  (2)  the  instruction  card  man,  (3)  the  cost 
clerk,  (4)  the  time  clerk. 

The  route  clerk  plans  the  course  which  each  piece  of 
work  is  to  travel  on  its  way  through  the  shop  from  one 
machine  to  another.  He  informs  the  superintendent 
of  the  various  workmen,  by  means  of  written  cards  ex- 
actly what  each  workman  may  expect  to  appear  at  his 
machine  at  any  particular  hour  during  the  day.  Thus 
are  the  various  shop  bosses  kept  in  touch  with  the  chron- 
ological order  of  procedure  and  they  know  what  must  be 


158  BUSINESS  ORGANIZATION 

done  if  the  work  is  to  be  produced  in  proper  routine. 

The  instruction  card  man  draws  up  another  set  of 
cards  showing  the  number  of  the  pieces  of  work  which 
the  route  clerk  had  directed  on  its  course  from  machine 
to  machine.  He  supplies  the  cost  order  number  on  the 
card  and  puts  instructions  on  it  pertaining  to  the  various 
tools  and  fixtures  that  are  to  be  used  on  each  piece  of 
work  in  carrying  out  every  process. 

This  card  also  gives  instructions  to  the  foremen  as  to 
what  tools  and  fixtures  it  is  necessary  to  supply  the 
men  with,  and  hence  there  is  no  necessity  for  the  work- 
man to  leave  his  machine  for  any  purpose  during  work- 
ing hours.  The  tools  are  brought  to  him  and  the  raw 
materials  are  delivered  at  his  machine.  By  looking  at 
his  instruction  card  he  knows  just  how  to  set  his  machine 
for  the  proper  speed  and  proper  feed.  The  thinking  is 
done  in  the  planning  room  and  the  functional  foremen 
in  the  shop  simply  obey  instructions. 

The  cost  and  time  clerks  formulate  instructions  for 
recording  the  time  which  each  man  is  expected  to  con- 
sume in  his  work.  For  example :  the  cost  clerk  lays  out 
in  advance  the  length  of  time  which  each  workman  is 
expected  to  take  in  doing  his  piece  of  work.  If,  for 
some  reason,  the  workman  is  unable  to  do  his  task  in  the 
time  alloted  to  him,  it  becomes  his  duty  to  inform  the 
shop  foreman  that  a  mistake  has  been  made  in  calculat- 
ing the  time.  The  speed  boss  then  takes  up  the  matter, 
and  if  after  examining  the  machine  to  see  that  no  mis- 
take has  been  made  in  its  setting,  he  finds  the  workman's 
statement  correct,  he  reports  the  case  to  the  planning  de- 
partment for  correction. 

96.  Shop  bosses  and  their  duties. — In  the  shop  there 
are  (1)  the  gang  boss,  (2)  the  speed  boss,  (3)  the  in- 
spector, (4)  the  disciplinarian.  These  men  can  be  se- 


DEPARTMENTAL  ORGANIZATION  159 

lected  without  difficulty  and  their  training  provided  for 
if  the  manager  has  a  clear  idea  of  what  he  wants  to  ac- 
complish. 

The  gang  boss  has  no  definite  duties  as  such.  He 
simply  carries  out  such  work  as  the  planning  department 
assigns  him. 

The  speed  boss  sees  that  the  work  is  carried  out  ac- 
cording to  the  schedule  sent  out  by  the  planning  room. 

The  inspector  looks  after  the  quality  of  the  work  as 
it  comes  from  the  machines.  He  must  be  able  to  in- 
struct the  men  as  to  the  type  and  quality  of  workman- 
ship required. 

The  disciplinarian  settles  all  cases  of  insubordination, 
and  passes  judgment  upon  the  disputes  which  arise  be- 
tween workmen  and  foremen. 

There  is  a  fifth  boss  in  some  factories  whose  duty  it  is 
to  keep  the  machines  clean  and  in  repair;  and  in  addi- 
tion he  may  be  called  upon  to  keep  things  in  good  order. 

Functional  organization  is  being  strongly  urged  by 
some  of  the  best  accountants  and  industrial  engineers  in 
the  country.  Mr.  H.  F.  J.  Porter,  one  of  the  leading 
authorities  upon  industrial  organization,  in  a  recent 
paper  upholding  the  above  method,  quotes  the  following 
instance  showing  the  results  of  this  method: 

In  connection  with  a  large  foundry,  we  had  men  loading  pig 
iron  on  cars  by  carrying  it  up  an  inclined  plane.  It  had  been 
customary  to  pay  the  men  $1.15  a  day  for  carrying  12  to  13 
tons  of  pig  iron. 

The  lowest  grade  of  labor  had  been  doing  this  work.  If  a 
man  applied  for  work,  he  was  put  into  one  of  these  gangs. 
The  better  men,  as  they  proved  themselves,  were  later  taken  out 
and  put  into  the  shop  as  machinists,  etc.  That  left  in  these 
gangs  only  the  young,  untrained  men,  who  were  not  particularly 


160  BUSINESS  ORGANIZATION 

strong,  or  the  old  men  who  were  incapacitated  for  any  other 
work. 

The  functional  foremanship  plan  was  introduced  into  these 
gangs  and  the  laborers  were  taught  how  to  handle  the  pig  iron. 
A  careful  study  was  made  covering  a  period  of  severaj  weeks 
to  determine  just  how  fast  the  men  ought  to  be  able  to  handle 
the  iron,  pick  it  up,  carry  it  a  certain  distance,  get  to  the  car, 
drop  it,  and  come  back  again. 

The  work  was  divided  into  several  processes  and  the  men  were 
en<*~uraged  by  the  prospect  of  increased  pay  provided  the  out- 
put was  larger.  A  good  many  of  the  men  resisted.  They 
could  not  be  speeded  up.  These  were  weeded  out  and  others 
put  in  their  places.  They  were  urged  not  to  overwork,  but 
simply  to  do  a  fair  day's  work. 

The  result  of  all  this  was  that  instead  of  a  man  getting  $1.15 
a  day  for  carrying  12  to  13  tons,  he  averaged  in  a  short  time 
$1.85  a  day  for  loading  from  45  to  48  tons — but  these  were 
an  entirely  different  set  of  men  from  the  ones  we  had  started 
with. 


CHAPTER  X 

INTERDEPARTMENTAL  RELATIONS 

97.  Course  of  an  order  for  goods. — Let  us  now  con- 
sider the  system  by  which  the  orders  secured  by  the  sales 
department  from  customers  are  converted  into  finished 
goods  and  how  they  are  sent  back  to  the  purchaser.  We 
shall  assume  that  the  sales  department  is  located  at  the 
main  office  with  a  sales  manager  in  charge  and  a  corps 
of  clerks  as  assistants.  Under  the  manager  come  the 
district  sales  offices,  each  having  a  certain  territory 
within  which  are  located  the  traveling  salesmen,  the  local 
stores  or  other  means  by  which  the  company's  product 
is  disposed  of. 

Let  us  assume  that  the  main  office  is  located  in  Phila- 
delphia and  the  district  sales  offices  in  various  cities ;  one 
in  Boston  to  take  care  of  the  New  England  states;  one 
in  Albany  covering  the  territory  of  New  York  and  per- 
haps that  of  northern  Pennsylvania;  another  in  Cleve- 
land to  care  for  the  Ohio,  West  Virginia  and  Western 
Pennsylvania  territory. 

The  district  managers  have  under  them  the  "drum- 
mers," who  are  either  located  at  some  important  centers, 
or  travel  over  the  territory  at  regular  intervals.  Each 
branch  office  may  keep  on  hand  a  small  stock  of  goods 
to  be  used  as  samples,  or  may  run  a  store  of  consider- 
able size.  This  branch  system  is  also  used  in  the  in- 
struction of  salesmen,  which  is  treated  of  under  "Sales- 
manship" in  a  succeeding  chapter. 

We  are  now  interested  in  the  course  which  an  order 
ii-n 


162  BUSINESS  ORGANIZATION 

takes  through  the  factory  and  how  it  reaches  the  pur- 
chaser by  whom  it  was  given.  We  will  suppose  that  the 
salesman  has  overcome  all  difficulties  and  secured  his 
order.  Various  forms  are  used  in  sending  the  order  to 
the  factory,  depending  upon  the  character  of  the  goods. 
The  following  will  serve  as  a  sample: 


Date 

The  A.  B.  Company, 

Philadelphia,  Pa. 
Gentlemen : 

Please  furnish  to  the  Purchaser  Company  at  100  Blank 
Street,  Chicago,  the  following: 
Quantity.  Quality.  No.  Further  Details. 

Method  of  Shipment Mail Express Freight. 

Terms when  shipment  must  be  made. 


The  orders  received  every  day  in  the  order  depart- 
ment of  the  branch  house  are  sorted.  A  careful  record 
is  made  showing  the  number  of  sales,  the  various  kinds 
of  products  and  the  different  sales  managers  under 
whom  the  goods  were  sold.  If  the  branch  has  the  prod- 
uct in  stock  it  will  fill  the  order  directly;  if  not,  the  order 
goes  to  the  home  office,  where  orders  are  grouped  and 
the  factory  notified  as  to  what  should  be  manufac- 
tured. 

When  the  order  is  received  by  the  order  department, 
it  will  be  sent  immediately  to  the  shipping  department, 
a  duplicate  going  to  the  stores  department.  This  dupli- 
cate serves  as  authority  for  the  delivery  of  the  finished 
goods  by  the  stores  department  to  the  shipping  depart- 
ment. When  the  goods  are  turned  over  for  shipment 


INTERDEPARTMENTAL  RELATIONS          163 

an  inspector  sees  that  the  packing  is  done  properly  and 
that  the  final  shipment  is  made  in  accordance  with  the 
order  department's  instructions. 

In  case  the  required  goods  are  not  in  store  but  must 
be  manufactured,  the  direction  of  the  order  takes  an- 
other course.  A  copy  is  sent  first  to  the  superintendent 
of  the  production  division.  If  the  order  calls  for 
standard  products  he  decides  upon  the  number  of  parts 
that  must  be  made,  and  notifies  the  different  depart- 
ments concerned  in  their  production. 

If,  however,  the  order  is  for  a  new  style  or  new  prod- 
uct, the  engineering  department  is  consulted  by  the 
sales  manager.  A  design  is  made  and  a  factory  order 
number  is  assigned  to  it,  which  number  is  retained  until 
the  finished  article  appears  in  the  store  room. 

As  an  illustration  let  us  take  an  ordinary  steam  valve. 
The  parts  of  this  article  are  one  wooden  handle,  two 
brass  discs,  one  cast  iron  body,  two  screws.  The  super- 
intendent will  order  these  different  parts  from  the  store 
room  to  the  assembling  room.  The  washers  will  be  or- 
dered from  the  press-room,  the  steel  stems  from  the 
machine  shop,  the  wheels  for  the  valves  from  the  car- 
penter shop,  the  brass  discs  from  the  brass  foundry  and 
the  iron  body  from  the  iron  foundry.  If  the  screws  are 
not  in  stock  the  purchasing  department  will  be  ordered 
to  buy  them.  The  order  will  go  through  the  shop  bear- 
ing the  order  number  which  has  been  given  it.  Each 
department  will  turn  out  its  part  of  it  and  send  it  to  the 
stores  department.  Perhaps  there  may  be  departmental 
store  rooms ;  if  so,  then  the  inspector  examines  it  at  that 
stage  of  manufacture  before  the  workmen  get  their 
pay.  The  stores  department  then  turns  the  parts  over 
to  the  assembling  department.  Having  been  put  into  its 
final  form,  the  valve  is  returned  to  the  stores  department 


164  BUSINESS  ORGANIZATION 

for  finished  goods,  and  after  a  final  inspection  is  ready 
for  the  shipping  department,  the  district  sales  manager 
and  the  customer  for  whom  it  is  made. 

The  forms  that  are  used  for  carrying  the  work 
through  the  various  processes  which  have  been  referred 
to  are  generally  stock  forms.  They  may  vary  in  de- 
tails in  different  businesses,  but  in  general  outline  they 
are  very  simple. 

Thus  instead  of  sending  an  order  through  the  factory 
calling  for  200  valves,  the  order  goes  through  calling 
for  these  six  different  parts — namely,  200  washers,  200 
wheels,  200  stems,  400  screws,  200  cast  iron  bodies,  400 
brass  discs. 

98.  Drafting  department. — Reference  was  made  to 
the  close  connection  between  the  engineering  and  sales 
departments.  There  also  exists  a  vital  relation  between 
the  engineering  department  and  the  shop  itself.  The 
character  of  the  design  is  important,  since  all  the  proc- 
esses necessary  to  produce  the  product  will  be  shaped 
by  it.  Hence  a  design  should  not  be  decided  upon  until 
a  thorough  investigation  has  been  made  regarding  its 
fitness  for  the  market  and  the  factory  conditions  gov- 
erning its  manufacture.  Among  the  latter  factors  to 
be  considered  are  the  ease  and  cheapness  of  manufacture, 
the  use  of  standard  and  stock  parts,  and  the  working  re- 
lations between  the  several  departmental  authorities.  One 
of  the  great  drawbacks  to  economy,  efficiency  and  pro- 
gressiveness  in  many  organizations,  is  the  hostility  that 
exists  between  the  various  departments.  This  hostility 
can  be  broken  down  to  a  large  extent  by  having  the 
draftsmen  mingle  constantly  with  the  shop  foremen,  not 
only  to  establish  a  personal  touch  between  the  two  depart- 
ments, but  that  the  draftsman  may  absorb  all  the  shop 
and  foundry  practice  possible.  Designs  that  prove  a 


INTERDEPARTMENTAL  RELATIONS         165 

practical  success  soon  gain  the  respect  of  the  mechanic. 
Nothing  gives  a  manager  more  assurance  than  to  feel 
that  every  design  represents  the  combined  knowledge  of 
the  two  departments.  The  shop  men,  from  their  shop 
experience  and  knowledge  of  past  mistakes,  can  offer 
much  that  is  beneficial.  Such  conferences  will  also 
facilitate  better  routing  of  the  work  through  the  shop. 
There  may  be  a  still  further  development  due  to  this  in- 
ter-departmental intercourse,  namely,  a  thorough  and 
profitable  consideration  of  the  re-design  of  the  regular 
product.  Goods  of  special  sizes  and  quality  can  often 
be  changed  to  a  standardized  product.  Here  again  the 
sales  department  must  aid  the  engineering  end  of  the 
business  by  attempting  to  change  public  taste  so  that  a 
standard  article  will  be  accepted  in  place  of  the  individ- 
ualized sort.  Again,  if  the  draftsmen  are  in  close 
touch  with  the  factory,  they  will  be  readily  impressed 
with  the  necessity  of  designing  parts  that  can  be  easily 
and  cheaply  machined  and  assembled,  taking  into  con- 
sideration the  types  of  machine  tools  that  must  be  em- 
ployed. 

The  confidence  and  cooperation  of  the  shopmen  can 
be  further  gained  by  having  a  rule  that  all  drawings 
must  be  O.  K.'d  by  the  shop  foremen  before  they  are 
placed  in  the  shop.  The  sustained  interest  of  the  fore- 
men may  be  maintained  by  a  system  of  reports  which 
they  must  make  based  upon  their  actual  experience  while 
the  product  is  passing  through  their  hands.  These  re- 
ports may  contain  criticisms  of  the  design  or  new  sug- 
gestions. 

In  order  to  give  regularity  and  vitality  to  such  inter- 
course between  the  departments,  some  system  of  consul- 
tation should  be  devised.  One  eminently  practical 
and  successful  manager  appointed  a  committee  consist- 


166  BUSINESS  ORGANIZATION 

ing  of  the  head  designer  or  draftsman,  the  head  of  the 
tool  room,  the  factory  manager,  the  important  machine- 
room  foremen  and  the  head  cost  man.  At  times  this 
committee  was  aided  by  the  presence  of  the  foundry 
man,  the  pattern  maker  and  the  stock  man.  Before 
this  committee  came  all  ideas  pertaining  to  the  new  de- 
sign or  re-design  of  an  old  product.  "The  experienced 
shop  manager,"  says  Mr.  Charles  U.  Carpenter,  "has 
only  to  consider  the  usual  maddening  program  of  errors 
in  data,  mistakes  in  design,  faulty  judgment  regarding 
economy  of  manufacture,  lack  of  standardization  of 
parts,  and  last,  but  by  no  means  least,  the  covert  hostil- 
ity of  the  shopmen  to  the  new  productions  of  'that  draft- 
ing department,'  to  realize  the  possibilities  which  lie  in 
developing  methods  which  will  insure  accuracy,  econ- 
omy, standardization,  and  the  interest  of  the  machine 
foreman  in  the  successful  and  economical  production  of 
any  particular  design."  Standardization  of  design,  as 
an  important  element  in  management,  is  treated  in 
Chapter  VI  of  Part  II. 

99.  Tool  room. — The  relation  of  this  department  to 
the  remainder  of  the  factory  is  most  vital.  The  tool 
room  has  been  termed  "the  heart  of  the  shop."  No  fac- 
tory, any  more  than  the  artisan,  can  do  its  best  work 
with  poor  tools.  The  tool  room  is  therefore  responsible 
for  the  determination  of  what  the  maximum  efficiency 
of  a  factory  is.  Not  until  the  tool  room  is  in  a  rela- 
tively perfect  condition  can  there  be  established  a  basis 
for  the  determination  of  all  these  individual  standards 
by  which  the  efficiency  of  the  various  producing  factors 
can  be  measured.  The  possible  output,  the  lowest  cost 
of  production,  a  wage  standard — all  depend  on  the  ac- 
curate determination  of  the  lowest  possible  time  in  which 
each  piece  of  work  can  be  done.  Upon  the  tool  room 
falls  the  burden  of  starting  the  productive  forces, 


INTERDEPARTMENTAL  RELATIONS         167 

labor  and  machines,  at  a  rate  consistent  with  the  above 
requirements. 

To  begin  with,  then,  the  tool  room  must  meet  cer- 
tain tests.  Has  it  a  knowledge  of  the  best  results  that 
can  be  obtained  from  the  high-speed  cutting  tool  steel? 
Does  it  know  the  proper  shape  and  size  of  the  cutting 
tool?  Has  it  a  knowledge  of  the  character  of  the  steel 
worked  upon?  Has  it  determined  the  greatest  capacity 
of  the  machine  tool  used  with  reference  to  maintenance 
expense  and  depreciation? 

The  tool  room  is  in  reality  a  factory  within  a  factory. 
It  is  a  place  for  making  tools  that  are  to  be  used  in  the 
building  of  the  finished  machine  for  the  market.  All 
the  methods,  therefore,  that  apply  to  the  organization 
of  the  factory  proper  will  apply  to  the  production  of 
tools.  Standardization,  duplication,  subdivision  of 
labor — all  apply  here  in  principle  as  well  as  in  the  main 
organization. 

100.  Local  management  versus  direction  from  a  dis- 
tance.— The  relations  which  have  been  considered  so  far 
in  this  chapter  have  pertained  chiefly  to  departmental 
functions.  The  method  of  management  as  a  system  of 
control  has  only  been  referred  to  indirectly  by  the  men- 
tion of  branch  offices,  etc.  The  changes  which  are  go- 
ing on  in  the  method  of  management  are  in  harmony 
with  the  general  tendency  to  concentrate  the  control  of 
industrial  enterprises  in  the  hands  of  a  few.  Local 
management  has  disappeared  in  many  large  companies ; 
that  is,  the  functions  of  management  are  largely  per- 
formed at  a  main  office,  more  or  less  distant  from  the 
factory,  the  latter  being  left  in  charge  of  a  resident  su- 
perintendent, who  carries  out  the  instructions  of  the 
main  office  and  uses  such  equipment  and  materials  as 
are  given  to  him. 


168  BUSINESS  ORGANIZATION 

Local  management  exists  where  the  different  func- 
tions are  performed  by  departments  and  divisions 
located  at  the  factory.  This  condition  of  affairs  is  said 
to  exist  until  the  balance  of  power  has  been  absorbed  at 
a  main  office,  which  by  the  character  of  its  orders  show 
that  the  directing  authority  has  been  changed  from  a 
local  to  a  centralized  control.  A  main  office  may  per- 
form only  a  few  of  the  functions  or  it  may  exercise  all 
of  them.  The  practice  differs  with  the  different  com- 
panies. The  advantages  of  this  separation  of  the  man- 
agement from  the  factory  lies  in  the  fact  that  the  busi- 
ness transactions  are  more  readily  carried  on  at  a  busi- 
ness center  or  a  large  city,  and  if  the  company  owns 
more  than  one  factory,  centralization  and  specialization 
in  management  are  to  an  extent  productive  of  consid- 
erable administrative  economy.  Many  of  the  func- 
tions can  be  as  well  performed  away  from  the  mill  as  at 
the  mill.  The  telephone,  the  telegraph  and  the  mail 
express  have  made  this  possible  and  easy.  But,  on  the 
other  hand,  main  office  management  tends  to  become 
formal  and  automatic.  Indirect,  impersonal  and  me- 
chanical management  has  all  the  disadvantages  incident 
to  control  on  the  basis  of  knowledge  not  obtained 
through  the  senses  and  by  contact. 

Some  examples  of  separation  may  be  seen  in  the 
movement  to  a  main  office  of  those  functions  which 
were  associated  originally  solely  with  the  factory. 
Briefly  these  functions  are:  the  supply  of  equipment 
and  raw  material,  the  employment  of  labor,  the  manu- 
facturing of  goods,  the  storing,  warehousing  and  ship- 
ping of  same,  and  the  maintenance  of  the  plant.  While 
it  is  not  uncommon  to  find  the  executive  and  selling 
functions  located  at  the  factory,  these  will  be  the  first 
to  be  moved  when  a  separation  is  decided  upon.  The 
following  illustrates  this  separation: 


INTERDEPARTMENTAL  RELATIONS 


169 


I.  Functions  performed 

at  the  factory: 
Equipment. 

Supplying  raw  material. 
Purchasing. 
Employment. 
Manufacturing. 
Stores  and  warehouse. 
Transportation. 
Maintenance. 

II.  Functions  performed 

at  factory: 
Purchasing. 
Employment. 
Manufacturing. 
Store  and  warehouse. 
Maintenance. 


Functions  performed 

at  main  office: 
Executive. 
Administrative. 
Selling. 


Functions  performed 
at  main  office: 

Executive. 

Administrative. 

Selling. 

Supplying  raw  mate- 
rial. 

Transportation. 

Equipment. 

Functions  performed 
at  main  office: 

Executive. 

Administrative. 

Selling. 

Supplying  raw  mate- 
rial. 

Purchasing. 

Manufacturing  (part) 

Transportation. 

Maintenance  (part). 

Equipment. 

101.  Character  of  the  controlling  authority  and  its 
relation  to  the  business. — The  control  by  owners  is  much 


III.  Functions  performed 

at  factory: 
Employment. 
Manufacturing   (part). 
Stores  and  warehouse. 
Maintenance  (part). 


170  BUSINESS  ORGANIZATION 

more  frequent  to-day  than  it  was  a  few  years  ago.  The 
advantages  of  a  control  in  which  the  owner  feels  a  per- 
sonal interest  and  pride  are  shown  in  the  greater  vigor, 
freshness  and  energy  of  those  concerns  which  approach 
most  nearly  to  this  form  of  control.  The  organization 
which  is  controlled  by  a  salaried  manager,  to  whom 
profits  and  loss  are  only  of  an  indirect  interest,  tends 
toward  formality  and  unprogressiveness.  A  salaried 
employe  may  have  character,  skill  and  ambition,  but  he 
lacks  the  interest  in  the  company  which  the  owner  has. 
If  the  employe  has  a  stimulus  which  calls  forth  his  per- 
sonal effort  in  addition  to  and  distinct  from  his  activity 
due  to  a  desire  to  advance  in  the  company  and  to  retain 
his  position  as  a  means  of  livelihood,  there  is  an  approach 
to  the  more  desirable  condition  of  ownership  control. 
Many  forms  of  stimulus  have  been  tried,  few  have  been 
rewarded  by  success.  The  prevailing  tendency  to-day, 
aside  from  any  disciplinary  features  of  the  organization 
is  to  rely  upon  human  selfishness,  ambition  and  social 
necessities  to  urge  the  employe  to  an  exertion  deemed 
satisfactory  to  his  employers. 

102.  Committee  system. — One  method  that  is  proving 
to  be  more  and  more  a  success  is  the  committee  system 
of  management.  It  is  an  attempt  to  apply  the  same 
democratic  principles  of  government  to  factory  manage- 
ment that  have  proven  themselves  so  successful  when 
applied  to  the  national  and  state  governments.  The 
primary  idea  is  to  enlist  the  cooperation  of  the  men  in 
the  shop  in  forming  plans  and  offering  suggestions  for 
the  good  of  the  company.  By  frequent  meetings  and 
a  thorough  airing  of  opinions  an  esprit  de  corps  and  a 
feeling  of  responsibility  for  the  success  of  the  business 
as  a  whole  is  established.  In  its  method  this  system  is 


INTERDEPARTMENTAL  RELATIONS  171 

the  opposite  of  the  military  method  of  management. 
The  committee  system  is  especially  well  adapted  to  fur- 
nishing a  means  by  which  the  discontented  can  give  ex- 
pression to  their  feelings,  and  affords  a  valuable  aid  to 
the  management  in  locating  the  cause  of  any  disaffec- 
tion. Furthermore,  it  is  claimed  for  this  system  that  it 
provides  a  method  of  overseeing  whereby  an  executive 
totally  ignorant  of  shop  and  sales  processes  is  provided 
with  reliable  data  concerning  any  weak  spots  in  the  pro- 
duction, buying  or  selling  departments. 

103.  Committees. — The  purpose  of  all  committees  is 
to  act  as  advisory  bodies  only.  The  members  of  the 
committees  should  be  composed  chiefly  of  the  foremen. 
The  chairmen  of  the  most  important  committees  should 
in  most  cases  be  the  factory  superintendents.  In  cases 
where  there  are  assistant  superintendents,  these  may  act 
as  chairmen  of  the  less  important  committees.  In  prac- 
tice it  has  been  found  that  five  or  six  men  form  the  ideal 
committee.  Yet  in  some  cases  when  it  is  deemed  ad- 
visable to  have  some  of  the  superior  officers  or  factory 
experts  present  the  committee  may  be  enlarged,  but  in 
no  case  should  the  foremen  be  excluded. 

The  principal  committee  is  the  "main  factory  com- 
mittee." Before  this  body  come  all  the  general  ques- 
tions pertaining  to  the  shop.  The  superintendent  acts 
as  chairman.  The  secretary  should  be  a  stenographer 
and  should  be  selected  because  of  his  ability  to  absorb 
the  knowledge  of  conditions  and  to  express  an  intel- 
ligent opinion  upon  them.  Such  a  man  will  prove  an 
invaluable  aid  to  the  executive.  Other  members  of  this 
committee  should  be  selected  because  of  their  intelli- 
gence and  progressive  tendencies.  The  following  per- 
sonnel has  been  proved  to  be  effective  by  some  sue- 


17*  BUSINESS  ORGANIZATION 

cessf ul  managements :  Chief  designer  of  product,  chief 
designer  of  tools,  head  of  the  cost  department,  and  two 
or  possibly  three  foremen. 

One  of  the  special  functions  of  this  committee  is  to 
advise  upon  promotions.  The  superintendent,  of 
course,  acts  as  a  final  authority  in  such  cases  but  the  fact 
that  no  "boss"  is  to  have  a  chance  to  recommend  a  rel- 
ative or  friend  unquestioned  by  the  management,  frees 
the  minds  of  the  workmen  from  feelings  of  unfairness 
and  injustice. 

The  meetings  of  the  committee  should  be  regular  and 
certain,  and  although  the  exact  number  depends  upon 
the  nature  of  the  business,  yet  in  most  cases  meetings 
should  be  held  as  often  as  twice  a  week. 

The  next  committee,  or  rather  set  of  committees,  which 
follow  the  main  factory  committee  in  importance,  are 
the  subsidiary  committee  or  committees.  These  ap- 
pear when  a  company  makes  not  only  a  main  product 
but  also  some  subsidiary  product.  Their  duties  will  in 
general  be  of  much  the  same  nature  as  those  of  the  gen- 
eral factory  committee,  but  the  scope  of  their  work  will 
be  limited  to  the  line  of  production  in  which  they  are 
engaged. 

Each  committee  should  be  composed  of  the  foremen 
in  that  particular  line  of  production  together  with  some 
of  the  main  factory  committee.  It  has  been  found  ad- 
visable to  have  the  same  secretary  serve  on  as  many  com- 
mittees as  possible. 

104.  Meetings  of  the  job  bosses  and  foremen. — An 
extension  of  the  committee  system  is  seen  in  those  fac- 
tories where  the  foremen  hold  meetings  at  frequent  and 
regular  intervals  with  their  job  bosses.  Objection  to 
these  meetings  is  raised  by  some  authorities  on  the 
ground  that  it  takes  the  men  away  from  their  work  and 


INTERDEPARTMENTAL  RELATIONS          173 

retards  production.  In  reply  to  this  objection  sup- 
porters of  the  system  propose  that  the  meetings  be 
not  too  frequent  (twice  a  month  is  sufficient)  and  that 
they  be  short  and  to  the  point.  They  claim  that  any 
loss  due  to  slackened  production  will  be  more  than  com- 
pensated through  increased  harmony  and  the  depend- 
ence which  can  be  placed  upon  the  bosses.  In  the  last 
analysis  they  say  it  rests  upon  these  men  to  carry  out 
the  plans  of  the  management.  The  bosses  control  the 
labor  situation  in  the  shop  and  strongly  influence  the  at- 
titude of  the  laborers  toward  their  work.  Furthermore, 
these  meetings  not  only  afford  a  good  schooling  for  the 
bosses,  but  they  offer  the  superintendent  an  excellent 
opportunity  for  judging  the  men  from  whom  he  must 
select  his  future  foremen. 

The  general  foremen's  meeting  is  another  of  those 
meetings  which  are  thought  by  some  to  be  unnecessary; 
on  the  other  hand,  many  important  firms  consider  it  to 
be  one  of  the  most  important  means  of  efficient  manage- 
ment. The  purpose  of  this  meeting  is  to  furnish  an  ex- 
pert body  before  which  the  various  shop  practices  and 
policies  can  be  discussed.  A  foreman  in  defending 
some  act  of  his  department  which  has  retarded  progress 
will  not  be  inclined  to  use  falsehoods  or  extravagant  ar- 
guments if  he  knows  his  statements  are  to  be  listened  to 
by  a  body  of  men  well  acquainted  with  all  the  conditions. 

The  basis  of  discussions  in  the  majority  of  such  meet- 
ings will  lie  in  the  consideration  of  the  departmental 
records.  It  is  in  the  defense  of  these  reports  by  the 
different  foremen  that  many  new  plans  are  suggested 
which  are  later  developed  to  the  great  benefit  of  the 
company. 

Many  devices  might  be  suggested  as  aids  in  present- 
ing matter  to  the  various  meetings  of  this  kind.  One 


174  BUSINESS  ORGANIZATION 

method  has  been  the  use  of  a  folding  blackboard. 
Orders  from  an  executive  officer  pertaining  to  some 
work  which  is  especially  desired  to  be  developed  under 
certain  conditions  is  outlined  upon  this  blackboard  so 
that  each  foreman  knows  exactly  what  is  expected  of 
him  in  carrying  out  the  plans.  By  this  means  the  fore- 
man is  urged  to  do  his  best  for  he  knows  at  the  next 
meeting  this  blackboard  will  stand  as  a  mute  witness  of 
his  success  or  failure  in  the  presence  of  his  fellow  fore- 
men and  his  superior  officers. 

105.  Work  of  the  committees. — The  work  which  will 
form  the  basis  of  each  committee  discussion  must  be  in 
harmony  with  the  purpose  of  each  committee.  The  fol- 
lowing, however,  will  be  suggestive  in  showing  the 
fundamental  problems  which  must  in  some  form  or  other 
be  considered: 

1.  Routine  work  and  report  of  progress. 

2.  New  designs  and  inventions. 

3.  Cost  reductions  and  economy. 

4.  Plans  to  standardize  products. 


CHAPTER  XI 

OFFICE  SYSTEMS  AND  REPORTS 

106.  Basis  of  office  organization. — The  two  physical 
factors  in  office  organization  are  the  number  of  people 
to  be  employed  and  the  space  necessary  for  them.     But 
numbers  and  space  are  not  the  first  things  to  be  consid- 
ered in  planning  an  office  system.     Here,  as  in  the  fac- 
tory, the  natural  functions  that  are  to  exist  for  the  best 
conduct  of  the  particular  business  must  first  be  de- 
termined.    The   determining   of  the   groups   and   the 
work  which  each  group  shall  do  is  the  first  step  in  the 
office  organization.     Lay  out  the  work  to  be  done,  de- 
termine the  number  of  persons  to  do  it,  assign  to  them 
their  duties  and  the  requisite  space  to  work  in,  and  then 
erect  an  "office"  around  them. 

The  common  type  of  office  organization  is  described 
below.  Other  types  are  treated  in  connection  with 
methods  of  office  management  in  Chapter  IX  of 
Part  II. 

107.  Planning    the    administrative    offices.  —  First 
comes  the  department  within  which  the  general  one  of 
administration  is  to  be  exercised.    This  department  will 
embrace  all  the  administrative  offices  without  regard  to 
the  fact  that  the  officers  may  perform  specific  duties 
connected  with  a  special  department  later  on. 

The  divisions  in  this  department  must  first  provide 
for  the  handling  of  all  papers  and  letters  received, 
copies  of  all  letters  mailed,  and  the  duties  incidental  to 

175 


176  BUSINESS    ORGANIZATION 

distributing,  filing  and  mailing.  This  department  is 
known  as  the  filing  and  mailing  department. 

Another  department  will  have  charge  of  opening  and 
assorting  the  mail,  the  stenographic  force  and  so  on  and 
may  be  known  as  the  correspondence  department. 

The  accounting  department  embraces  two  separate 
lines  of  work;  (1)  that  connected  with  the  commercial 
end  of  the  business  and  (2)  that  pertaining  to  the  fac- 
tory. Both  are  under  one  administrative  head,  however. 

Next  in  order  comes  a  series  of  departments  which  are 
closely  connected  with  the  factory  organization.  Still 
in  planning  an  office  system  the  relations  of  these  de- 
partments to  the  general  administrative  department 
must  be  considered.  These  are  the  purchasing  depart- 
ment, the  customers'  order  department,  the  producers' 
order  department,  the  shipping,  the  receiving  and  the 
stores  departments. 

Under  the  administrative  department  which  may  have 
a  treasurer  and  an  auditor  or  comptroller  as  the  execu- 
tive head,  come  the  departments  of  cost,  statistics,  in- 
voicing, credits,  collections,  claims,  filing  and  mailing, 
office  supplies  and  services,  payrolls,  customers'  order 
department  and  shipping  department.  Such  an  or- 
ganization may  be  modified  to  suit  the  particular  fea- 
tures of  a  business,  but  in  general  outline  it  is  fairly 
typical. 

The  organization  of  the  office  has  not  as  a  rule  been 
subjected  to  the  same  amount  of  study  as  the  factory; 
yet  there  are  many  firms  which  have  reduced  their  office 
procedure  to  such  a  state  of  effectiveness  (the  activity 
being  so  nicely  balanced  and  proportioned)  that  one 
may  speak  of  their  office  methods  as  being  standardized. 
Such  firms  have  a  written  constitution  and  by-laws  for 
their  office  procedure.  These  rules  are  formulated  in 


OFFICE  SYSTEMS  AND  REPORTS  177 

simple  and  direct  language  by  the  administrative  head 
for  the  guidance  of  the  various  departments.  They  are 
the  standard  and  recognized  rules  of  procedure. 

In  order  to  still  further  promote  intelligent  coopera- 
tion, other  devices  such  as  posting  a  list  of  departments 
throughout  the  establishment,  the  selecting  of  a  com- 
mittee upon  office  administration  and  the  making  of 
charts  of  administration  are  employed. 

The  posting  of  a  list  of  names  that  has  been  carefully 
chosen  and  prepared  tends  to  secure  an  understanding 
of  the  duties  pertaining  to  each  department.  If  all  the 
departments  are  numbered,  as  they  should  be,  much  time 
may  be  saved  in  sending  orders  and  information  from 
one  to  another. 

Charts  of  organization  make  clear  the  divisions  which 
exist  between  the  different  departments.  They  aid  in 
keeping  the  members  of  one  division  from  encroaching 
upon  the  domain  of  another. 

The  committee  system  will  obviate  many  troubles  aris- 
ing from  a  misunderstanding  of  duties.  This  system, 
combined  with  the  set  rules  for  office  procedure  and  the 
written  statement  of  each  clerk's  duties  and  routine 
work,  affords  a  means  of  instruction.  The  committee 
makes  it  a  part  of  its  work  to  educate  the  clerks  for 
better  positions  and  to  receive  suggestions  from  them 
concerning  better  practice.  Firms  using  such  methods 
make  it  a  practice  not.  to  bring  outside  men  to  take 
vacancies.  Outsiders  are  only  taken  on  as  juniors  in 
subordinate  places.  The  positions  are  filled  by  promo- 
tions in  the  regular  staff. 

If,  however,  there  seems  to  be  no  man  among  the  em- 
ployes capable  of  meeting  the  requirements  of  the  posi- 
tion it  is  better  to  go  outside  for  the  right  man  than  to 
change  the  organization  to  fit  the  qualifications  of  some 


178  BUSINESS  ORGANIZATION 

person.  In  order  to  keep  the  office  force  in  touch  with 
the  general  policy  of  the  management  the  committee 
may  provide  for  a  series  of  examinations  to  test  the 
men's  understanding  of  the  organization.  The  em- 
ployes will  then  have  an  opportunity  to  see  the  relation 
of  parts  from  the  point  of  view  of  the  chief  executive. 
Such  tests  furnish  a  good  basis  for  judging  the  em- 
ployes fitness  for  promotion. 

In  connection  with  the  committee  system  there  might 
be  mentioned  a  committee  composed  of  executive  of- 
ficers for  the  fixing  of  the  office  salaries.  The  advan- 
tage of  this  method  is  that  it  substitutes  the  experience 
of  several  men  for  one  in  deciding  what  shall  be  the 
monetary  measure  of  each  man's  work.  Injustice  in 
fixing  compensation  will  do  more  to  disorganize  an  of- 
fice force  than  anything  else.  This  can  often  be  avoided 
by  referring  all  questions  of  salary  to  such  a  committee. 
Likewise  the  charge  of  favoritism  so  commonly  made 
against  the  head  of  the  department — and  the  staff  is 
continually  studying  the  foibles  of  the  chief  executive 
— is  obviated. 

108.  Office  appliances. — The  office  is  pre-eminently 
the  place  for  the  originating  of  orders,  the  receiving  of 
information  and  for  the  distribution  and  storing  of  the 
same.  This  makes  the  method  of  internal  communica- 
tion of  great  importance.  In  most  offices  much  time  is 
wasted  by  the  running  to  and  fro,  from  one  desk  to 
another,  of  the  employes  in  search  of  information. 

One  firm  has  a  carefully  planned  mail  system  and  it 
illustrates  what  can  be  done  in  this  direction  in  saving 
time.  On  the  desk  of  every  principal  executive  officer 
are  three  baskets,  one  for  incoming  mail,  one  for  outgo- 
ing letters  and  one  for  the  mail  that  is  to  go  directly  to 
the  files.  There  is  a  messenger  boy  whose  duty  it  is  to 


OFFICE  SYSTEMS  AND  REPORTS  179 

gather  information  and  to  distribute  it.  One  of  the 
prime  requisites  of  this  messenger  service  is  that  it  shall 
be  regular  and  frequent.  Besides  a  gain  in  time  there 
is  the  added  gain  due  to  the  habits  of  concentration 
which  are  formed.  The  employe  soon  learns  to  depend 
upon  the  system  and  he  is  not  taken  from  his  regular 
work  to  run  about  the  plant. 

This  system  of  communication  is  aided  by  a  pneu- 
matic tube  service  and  by  a  system  which  makes  it  pos- 
sible to  gain  access  to  the  files,  to  the  office  library,  and 
to  the  catalogues  and  other  sources  of  information. 

It  cost  a  certain  company  $20,000  to  put  in  the  sys- 
tem, but  it  was  found  that  the  service  paid  for  itself  the 
first  year.  The  office  force  of  this  company  consisted 
of  150  people  and  its  factory  employes  numbered  about 
2,000  men.  It  was  found  upon  investigation,  before 
the  new  system  was  put  in,  that  there  were  twenty-four 
places  where  letters  were  stored,  and  these  were  dis- 
tributed over  six  floors  of  two  buildings  separated  by  a 
distance  of  100  yards. 

Modern  office  practice  has  developed  many  time  and 
labor-saving  devices.  Card  systems  and  loose  leaf  sys- 
tems in  connection  with  the  carbon  copy  have  made  it 
possible  to  do  away  with  duplicate  entries  of  the  same 
information,  and  the  modern  voucher  system  has  greatly 
reduced  the  labor  of  book-keeping  and  other  recording 
devices  for  keeping  information  as  to  payments  and  so 
on. 

109.  Standard  forms. — One  of  the  most  important 
things  is  the  standardization  of  forms.  This  has  refer- 
ence to  size,  ruling,  disposition  of  matter,  the  facts  to  be 
put  on  the  forms  and  the  quality  of  paper.  The  first 
consideration  in  designing  a  form  is  to  decide  what  facts 
are  to  be  represented  there.  The  size  of  the  paper 


180  BUSINESS  ORGANIZATION 

should  depend  upon  the  amount  of  information,  and 
the  arrangement  should  not  be  forced  into  an  illogical 
form  because  of  some  preconceived  idea  as  to  size  and 
shape  regardless  of  the  nature  of  the  information. 
Neither  should  the  quality  of  the  paper  be  left  to  the 
printer.  Current  information  can  go  on  cheap  paper 
while  that  meant  for  permanent  records  should  go  on 
the  best  quality.  The  question  of  uniform  ruling  is 
very  important  in  the  matter  of  saving  time.  A  clerk 
can  do  fifty  per  cent  more  work  upon  forms  that  are 
standardized  because  he  becomes  familiar  with  the  spac- 
ings  and  types. 

Another  feature  of  office  method  pertains  to  the  selec- 
tion of  binders  and  card  cabinets.  Here  again  a  stand- 
ard type  should  be  adopted  which  will  apply  throughout 
the  establishment.  This  provides  for  the  shifting  of  a 
cabinet  from  one  department  to  another,  and  allows  it 
to  be  used  for  another  purpose  should  an  occasion  arise. 

Many  devices  might  be  named  that  are  used  in  offices 
to-day  but  most  of  them  such  as  the  addressograph,  cal- 
culating, listing  and  billing  machines  are  too  familiar 
to  need  description.  These  mechanical  devices  are  gen- 
erally expensive,  but  in  large  offices  they  are  almost  in- 
dispensable and  effect  great  saving. 

110.  Reports. — There  are  two  kinds  of  reports,  spe- 
cial or  emergency  reports  and  regular  reports.  It 
should,  however,  always  be  remembered  in  their  compila- 
tion that  nothing  but  information  germane  to  the  title 
of  the  report  should  be  included,  and  that  no  reports 
should  be  made  at  all  which  have  not  some  definite  pur- 
pose. 

A  report  implies  a  maker  and  a  receiver.  The  latter 
generally  represents  someone  in  authority  who  is  to  use 
and  pass  judgment  upon  the  information  contained  in 


OFFICE  SYSTEMS  AND  REPORTS  181 

it.  Therefore,  the  function  and  purpose  of  the  man 
who  receives  the  report  should  determine  its  character 
and  contents.  It  is  not  necessary,  for  instance,  to  give 
the  head  of  the  selling  department  a  report  embodying 
the  detailed  costs  of  production  of  the  articles  he  sells, 
nor  is  it  necessary  to  give  the  superintendent  or  foreman 
a  number  of  reports  that  pertain  chiefly  to  the  value  of 
goods.  Mr.  James  N.  Gunn,  one  of  the  leading  authori- 
ties upon  office  systems  and  practices,  lays  down  the  fol- 
lowing rule:  "To  every  man  in  the  organization  should 
be  given  only  that  information  that  his  position  deter- 
mines he  can  use — not  the  information  he  may  be  cu- 
rious about." 

111.  Factors  deciding  who  should  make  the  reports. 
— In  determining  who  should  compile  a  report  the  exe- 
cutive head  who  has  the  power  to  demand  it  should  first 
investigate  the  opportunities  which  each  person  has  of 
gaining  "the  information  which  is  desired  at  the  office. 
Much  useless  data  is  forwarded  to  the  head  office  by  fore- 
men and  superintendents  because  they  are  requested  to 
send  in  monthly  or  weekly  reports  without  any  consid- 
eration of  their  fitness  to  secure  reliable  facts. 

112.  Contents  of  the  reports. — It  is  difficult  to  gener- 
alize, but  two  things  should  always  appear  when  possi- 
ble:   (1)    physical    data,    (2)    financial    data.     Many 
schemes  for  gathering  statistics  for  operating  purposes 
fail  because  the  reports  contain  financial  data  only.     All 
of  the  costs,  whether  for  labor,  material  or  overhead  ex- 
pense are  expressed  in  terms  of  value.     Then  too  the  re- 
port should  contain  facts  that  are  comparable,  and  all 
should  relate  to  a  central   fact.     Each  report  should 
make  a  complete  unit.     The  reports  made  to  the  general 
manager  of  a  large  company  manufacturing  twenty- 
five  per  cent  of  all  the  car  wheels  in  the  United  States 


182  BUSINESS  ORGANIZATION 

shows  that  he  receives  each  month  the  balance  sheet,  and 
loss  and  gain  accounts,  the  costs  of  the  various  processes, 
not  merely  in  terms  of  money,  but  in  physical  terms, 
showing  the  number  of  pounds  of  metal  poured  for 
every  good  car  wheel,  or  for  every  hundred  pounds  of 
car  wheels  actually  delivered  to  customers.  In  addition 
he  gets  special  reports  bearing  upon  some  particular 
"diseases  of  car  wheels."  Other  reports  showed  that  he 
had  a  record  of  his  men's  efficiency  as  well  as  records  of 
his  machines  and  the  plant. 

The  purpose  and  source  of  any  report  should  decide 
the  nature,  the  form  and  arrangement  of  its  contents. 
As  the  conditions  which  govern  the  purpose  and  the 
sources  vary  in  different  businesses,  it  is  impossible  to 
describe  any  one  system  of  reports  which  will  be  applica- 
ble to  all  enterprises.  Nevertheless  there  are  a  few  fun- 
damental ideas  which  underlie  the  structure  of  the  prin- 
cipal reports  which  are  meant  for  the  eye  of  the  execu- 
tive as  an  aid  in  the  determination  of  his  business  policy. 
The  two  main  purposes,  therefore,  from  the  point  of 
view  of  the  executive's  business  policy,  will  be  the  deter- 
mination of  the  conditions  under  which  the  factory  is 
producing  and  selling  its  goods.  Before  any  manager 
can  intelligently  interpret  the  conditions  as  they  are  rep- 
resented by  actual  operation,  he  must  have  some  stand- 
ard with  which  to  compare  these  actual  results.  Such  a 
standard  may  be  gained  by  first  determining  what  must 
be  accomplished  in  the  production  and  commercial  ends 
of  the  business  in  order  to  net  him  a  fair  profit. 

In  arriving  at  a  basis  to  be  used  as  a  standard  of  com- 
parison in  the  process  of  production,  the  executive 
should  have  reliable  methods  for  determining  the  char- 
acter, volume  and  regularity  of  the  output,  the  progress 
of  inventions  and  new  ideas  which  make  for  greater  ef- 


OFFICE  SYSTEMS  AND  REPORTS  183 

ficiency  and  lessening  of  costs,  and  finally  the  cost  of 
production.  In  determining  a  similar  standard  for  the 
commercial  or  sales  department,  methods  must  be 
adopted  for  calculating  the  character  of  the  market, 
that  is,  what  profit  must  be  obtained  and  what  volume 
of  business  must  be  secured  and  what  expense  can  be 
allowed  in  order  to  make  the  profit.  This  would  in- 
volve considerations  of  each  class  of  goods  manufac- 
tured, their  sales  in  each  territory  and  the  expense  con- 
nected with  the  holding  of  supplies  while  they  are  being 
marketed.  The  function  of  reports,  therefore,  should 
not  only  aid  the  executive  in  arriving  at  the  necessary 
information  which  gives  him  a  firm  grasp  upon  the 
technique  of  the  business,  but  the  compilation  of  the  re- 
port itself,  should  help  in  the  accomplishment  of  the  re- 
sults. This  last  function  will  be  best  promoted  through 
some  system  in  the  collecting  of  data  and  the  prepara- 
tion of  the  report  by  which  the  men  responsible  for  the 
direct  supervision  of  the  manufacturing  and  selling  de- 
partments can  be  brought  into  intelligent  and  sympa- 
thetic cooperation  with  the  policies  and  ambitions  of  the 
chief  executive.  Where  the  committee  system  has  been 
employed  as  one  of  the  essential  features  in  factory  or- 
ganization, many  reports  which  would  otherwise  involve 
much  time  and  expense  in  their  preparation  can  be 
quickly  and  easily  made  out  by  using  the  various  com- 
mittees as  the  source  of  the  information.  The  reports 
under  such  conditions  are  made  up  whenever  possible 
by  the  committee  handling  the  different  branches  of  the 
product.  "You  may  be  sure/'  says  Mr.  Carpenter, 
former  president  of  the  Herring-Hall-Marvin  Safe 
Company,  "that  your  committee,  composed  of  enthusi- 
astic men  whose  reputations  are  at  stake,  are  going  to 
see  that  these  reports  represent  the  very  best  that  they  in 


184  BUSINESS  ORGANIZATION 

the  shop  can  accomplish,  when  they  know  that  these  will 
be  closely  scrutinized  by  the  heads  of  the  company." 

There  are  four  general  kinds  of  reports — (1)  those 
of  the  profit  and  loss,  (2)  those  of  the  factory,  (3)  those 
of  the  sales  department,  and  (4)  the  cost  reports.  Gen- 
erally speaking  these  should  be  so  arranged  and  timed 
that  each  will  serve  as  a  basis  for  comparison  with  the 
others.  For  example,  the  executive  profit  and  loss  re- 
port when  compared  with  the  selling  department  reports 
should  prove  a  valuable  index  to  business  conditions, 
and  when  considered  in  connection  with  the  data  in  the 
factory  reports,  a  monthly  balance  sheet  may  be  con- 
structed. 

113.  Executive  report. — The  profit  and  loss  report  is 
of  the  greatest  importance.  Upon  it  are  founded  all 
others.  It  is  produced  monthly  and  its  data  comes  di- 
rectly from  the  firm's  books. 

The  data  in  the  report  should  be  so  arranged  as  to 
permit  the  ready  comparison  of  those  items  which  show 
the  relative  standing  of  the  different  branch  houses  of 
the  firm.  If  the  concern  has  branches  in  Chicago,  New 
York,  and  also  in  some  of  the  minor  towns,  these  names 
might  well  head  three  separate  columns  under  which 
would  appear  the  result  in  dollars  and  cents  of  the 
month's  activities  pertaining  to  the  various  items  of  in- 
come and  expense,  cost  and  profit.  The  items  should 
be  classified  and  each  classification  should  be  given  its 
total  as  well  as  itemized  statement.  Thus  there  should 
be  spaces  for  "deliveries"  (classified)  and  total  "deliv- 
eries," for  "factory  costs,"  for  "all  other  cost  charges" 
(classified  e.  g.  freight,  storage,  etc.)  and  total  "all 
other  costs."  All  these  costs  may  now  be  considered  as 
total  "delivery  costs."  "Gross  profit"  will  be  next;  and 
the  two  items  of  delivery — costs  and  gross  profit — thus 


OFFICE  SYSTEMS  AND  REPORTS  185 

standing  together,  are  in  the  most  favorable  relation  for 
comparison.  Continuing  down  the  column  the  next 
broad  classification  comes  under  "selling  expense"  (clas- 
sified). 

Salesmen,  salaries  and  commissions. 
(Dep'ts.) 

(a)    

(b)    

(c)    

Salesmen,  expenses. 

(Dep'ts.) 

(a)    

(b)    

(c)  .._ 

Managers,  salaries   

expenses 

Advertising     

Total  "selling  expense"    

The  next  general  classification  embraces: 

"General  expenses"  (classified) 

Office  salaries   

Rent,  insurance,  taxes 

Postage,  telephone,  etc 

Stationery 

Light,  heat,  power 

Maintenance   

Adjustments  and  losses 

Attorney's  fees 

Miscellaneous    

Total  "general  expense" 

The  total  selling  and  general  expense  may  also  be 
given  as  embracing  the  last  two  related  items  of  costs 


186  BUSINESS  ORGANIZATION 

and  finally  tiie  last  item  in  the  column  will  be  the 
"profit"  or  the  "loss." 

A  careful  analysis  of  the  above  report  will  show  where 
the  greatest  profits  in  the  business  were  made  and  where 
the  losses  occurred.  Any  change  in  the  expense  items 
from  the  normal  can  be  readily  detected,  and  to  facili- 
tate this,  extra  columns  for  percentages  might  easily  be 
constructed. 

114.  Report  from  the  selling  department. — The  pur- 
pose of  this  report  is  frequently  and  regularly  to  put 
the  executive  in  possession  of  the  chief  business  facts 
connected  with  the  selling  division.  He  needs  these  re- 
ports in  order  that  he  may  push  forward  for  more  busi- 
ness or  perhaps  that  he  may  the  better  direct  the  credit 
and  collections.  As  a  basis  for  judging  the  actual  sales 
made  and  the  actual  expenses  incurred  there  should  be 
carefully  worked  out  and  included  in  each  report  the  re- 
quired sales  necessary  for  the  success  of  the  business  and 
the  expenses  that  can  be  allowed.  The  "required  sales" 
and  "allowable  expenses"  should  be  calculated  by  a  man 
thoroughly  acquainted  with  the  business  and  after  a 
careful  examination  of  the  conditions  under  which  the 
firm  must  work  in  each  territory;  the  profit  which  the 
firm  should  make  and  the  difficulties  of  getting  business 
will  then  stand  in  a  truer  relation  to  each  other. 

The  same  standard  form  embracing  the  same  data 
can  be  used  in  preparing  the  report  upon  the  estimated 
sales  and  expenses  as  that  employed  for  showing  the 
actual  sales  and  expenses.  By  so  doing  a  comparison 
of  the  business  "realized"  with  the  "allowable  amounts" 
is  facilitated. 

The  items  which  will  form  the  basis  of  the  sales  report 
will  be  as  follows: 


OFFICE  SYSTEMS  AND  REPORTS  187 

1.  Each  branch  of  the  concern  will  be  reported  upon 
in  regard  to  all  items. 

2.  Percentage  calculations  for  each  item. 

3.  The  volume  of  sales  required  or  made  (classified). 

4.  The  factory  costs  allowed  or  incurred  (classified). 

5.  Extra  costs  of  every  character,  allowed  or  sus- 
tained (classified). 

6.  Gross  profits,  required  or  made. 

7.  Selling  expenses,  allowed  or  incurred. 

(a)    Classified — 

(1)  Salesmen,  salaries. 

(2)  Salesmen,  commissions. 

(3)  Salesmen,  expenses. 

(4)  Managers,  salaries. 

(5)  Managers,  expenses. 

(6)  Advertising  expenses. 

8.  Total  selling  expenses. 

9.  General  expenses,  allowed  or  incurred. 

(a)    Classified — 

(1)  Rent. 

(2)  Insurance. 

(3)  Taxes. 

(4)  Telegraph  and  telephone. 

(5)  Office  salaries. 

(6)  Legal. 

(7)  Miscellaneous. 

10.  Total  general  expense. 

11.  Total  all  expense. 

12.  Net  profit,  required  or  made. 

The  advantage  of  the  two  reports  to  the  executive  for 
purposes  of  comparison,  one  showing  the  results  desired 
and  the  other  the  actual  accomplishment  eff  ected  by  the 
selling  division,  needs  no  commentary.  There  are,  how- 


188  BUSINESS  ORGANIZATION 

ever,  other  advantages  gained.  The  sales  manager  can 
see  for  himself  without  a  special  interview  with  the  exe- 
cutive what  must  be  done,  and  by  comparison  he  ob- 
serves with  what  success  or  failure  his  policies  have  been 
rewarded.  These  reports  also  furnish  reliable  informa- 
tion as  to  trade  conditions  and  such  knowledge  is  of 
prime  importance  to  the  chief  executive  in  directing  the 
general  policy  of  the  firm.  Especially  valuable  are 
these  reports  to  a  firm  which  does  a  business  involving 
long  time  contracts  under  which  deliveries  are  made 
long  after  the  sales  are  recorded. 

115.  Factory  reports. — Reports  from  the  factory 
may  be  as  numerous  and  as  varied  as  the  desires  and 
fancies  of  the  executive  may  impel  the  factory  manag- 
ers or  committees  to  prepare.  We  will,  therefore,  con- 
fine ourselves  to  the  description  of  such  reports  as  fit  in 
logically  with  the  reports  selected  from  the  other  de- 
partments. A  report,  for  instance,  that  throws  light 
upon  the  executive's  profit  and  loss  report,  showing  the 
source  of  certain  gains  or  losses,  is  very  desirable.  The 
production  and  efficiency  report  is  such  and  may  be 
made  a  valuable  guide  in  determining  the  efficiency  of 
the  factory  as  a  whole  or  of  any  department  in  the  fac- 
tory. This  report  should  be  so  constructed  that  the  re- 
sults for  various  periods  may  be  compared  with  each 
other,  either  as  a  total  or  an  average.  In  order  to  es- 
tablish a  normal  or  standard  result  the  averages  of  a  pre- 
ceding period  of,  say,  six  months  may  be  taken.  With 
these  averages  the  present  weekly  or  monthly  results 
may  be  compared. 

The  data  which  should  be  entered  upon  the  efficiency 
report  will  be  as  follows: 

1.  Date,  week  or  month  ending. 

2.  Number  of  employes. 


OFFICE  SYSTEMS  AND  REPORTS  189 

3.  Output. 

(a)  Number  of  machines. 

(b)  Value. 

4.  Hours  worked.    . 

(a)  Total. 

(b)  Overtime. 

5.  Payroll. 

(a)  Piece  work. 

(b)  Day  work. 

(c)  Percentage  of  jobs  reaching  standard  time. 

6.  Material  purchased. 

(a)  Directly. 

(b)  Indirectly. 

7.  Inventory  (classified). 

8.  Miscellaneous  charges  (classified). 

9.  Factory  balances   (classified). 

10.  Costs. 

(a)  Material. 

(b)  Labor  (classified). 

(c)  General  wages. 

(d)  Total. 

11.  Increases  or  decreases. 

(a)  Where? 

(b)  Why? 

By  comparing  the  results  as  recorded  in  the  above 
outline  with  previous  reports  of  the  same  kind,  the  pres- 
ent efficiency  of  the  factory  or  any  department  may  be 
easily  calculated.  This  comparison  of  present  costs  and 
values  with  previous  costs  and  values  shows  where  each 
gain  or  loss  has  been  sustained,  while  a  comparison  con- 
fined to  items  within  the  single  report,  although  it  may 
show  a  total  gain  or  loss,  would  not  disclose  the  particu- 
lar cases.  For  example,  we  may  compare  the  figures 
representing  the  number  of  employes,  payrolls  and  ma- 


190  BUSINESS  ORGANIZATION 

terial  purchases  with  the  value  of  the  output  and  the  in- 
ventories. Such  a  comparison  would  not  show  whether 
the  gain,  if  there  were  a  gain,  is  due  to  greater  efficiency 
in  the  production  or  purchasing  department.  With  this 
report  before  him,  the  executive  is  put  into  possession  of 
a  knowledge  of  the  relative  strength  of  the  concern  as  a 
competitor  for  business.  That  is,  he  will  know  his 
profit  as  a  producer,  and  with  this  as  a  basis  he  can 
gauge  his  strength  in  the  commercial  field.  Normally, 
there  should  be  a  considerable  margin  between  the  cost 
of  the  finished  product  and  its  market  value.  Thus  as 
the  product  leaves  the  production  end  of  the  business 
and  enters  the  commercial  field  the  manager  by  the  sim- 
ple process  of  subtracting  the  cost  of  production  from 
his  estimated  selling  price,  can  allow  for  the  expenses 
necessary  to  sell  without  depriving  himself  of  his  profit. 

116.  "Progress  report."— Another  report  from  the 
factory  is  the  "progress  report."  This  comes  to  the 
manufacturer  weekly,  and  if  the  concern  is  one  which 
handles  considerable  contract  work  such  information  de- 
noting progress,  becomes  of  great  importance.  Given 
the  conditions  under  which  the  product  is  advancing  to- 
ward completion  the  manager  can  put  pressure  at  the 
right  spot  at  the  right  time  and  so  avoid  threatened  de- 
lays and  tardy  deliveries.  There  is  no  support  which 
the  factory  can  give  the  selling  department  that  is  more 
important  and  more  appreciated  by  the  latter  than  the 
setting  of  delivery  dates  which  can  be  met.  Some  firms 
in  pushing  a  new  product  take  orders  ahead.  But  the 
ability  to  meet  delivery  dates  should  be  first  carefully 
considered. 

The  following  form  embodying  the  items  contained 
in  the  report  is  given  as  a  model :  1 

i  Taken  from  "  Profit-Making  Management,"  by  C.   U.  Carpenter,  page 
142. 


OFFICE  SYSTEMS  AND  REPORTS 


191 


Condition  of  Orders  (classified). 

Is 

§ 

o 

In  these  columns  place  the 
different  classifications  of 
each  contract,  showing  % 
finished. 

s! 

-M 

§ 

3? 

1    « 

T3 

1)     >» 

p  ?Q. 

55 

Mti 

II 

cS    4> 

S5 

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5^ 

•paddiqs  si  }T?qAV 

Xq  diqs  }snn 

-Aq  loajg  ;snj\; 

ugp-iQ  jo  a}t?a 

&K 

|P 

llf 
«e 

| 

4-J        . 

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T3  Ifl 

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p 

fiE 

BUSINESS  ORGANIZATION 

"Such  reports,"  says  Mr.  Carpenter,  "covering  a  very 
wide  variety  of  work,  have  for  a  long  time  been  made 
out  by  our  factories  on  Saturday  morning,  arriving  on 
my  desk  the  following  Monday.  Meetings  with  inter- 
ested heads  of  financial  and  sales  divisions  immediatelv 

tf 

follow,  and  as  a  result  the  closest  possible  touch  between 
the  several  divisions  upon  the  one  important  point- 
Production." 

117.  Cost  reports. — These  reports  are  treated  in  full 
in  AUDITING  AND  COST  ACCOUNTS,,  but  as  a  part  in  the 
general  system  of  organization  their  importance  should 
not  be  overlooked.     Not  all  manufacturers  are  willing 
to  go  to  the  expense  of  gathering  accurate  cost  and 
stock  data,  yet  all  recognize  the  aid  which  fully  analyzed 
cost  figures  would  give  them  in  checking  up  the  various 
departments.     Says  one  successful  business  man,  "Let 
one  of  the  higher  officers  bring  into  a  committee  meet- 
ing, or  a  general  foremen's  meeting,  a  set  of  fully  an- 
alyzed cost  returns  upon  some  particular  line  of  the 
product,  and  begin  to  inquire  of  the  different  foremen 
present  why  their  share  of  the  expense  amounts  to  'so 
large  an  amount,'  and  there  will  usually  follow  a  heated 
discussion  that  will  throw  many  a  valuable  side  light 
upon  the  cost  of  production." 

118.  Period  covered  by  a  report. — Two  things  must 
determine  this:   (1)  the  kind  of  organization,  and  (2) 
the  sort  of  men  in  the  organization.     The  operating  re- 
ports are  generally  made  weekly  i.  e.,  the  payroll  period. 
A  statement  such  as  the  profit  and  loss  account  usually 
appears  semi-annually  or  annually  although  many  con- 
cerns favor  a  monthly  report. 

119.  What  should  be  done  with  reports. — It  should 
always  be  kept  in  mind  that  a  report  is  for  business  and 
not  for  historical  purposes.     "A  good  test,"  says  Mr. 


OFFICE  SYSTEMS  AND  REPORTS  193 

Gunn,  "of  the  usefulness  of  any  report  is  to  see,  after 
that  report  is  placed  in  the  hands  of  the  proper  execu- 
tive, whether  anything  happens  as  the  result  of  action 
he  may  take  based  upon  the  information  contained  in  the 
report."  If  the  concern  has  adopted  the  committee  sys- 
tem there  is  no  point  in  the  organization  where  the  bene- 
fits of  such  a  method  will  be  better  displayed  than  when 
it  is  brought  into  use  in  a  discussion  of  the  various  re- 
ports. The  reports  having  been  made  out  and  for- 
warded to  the  executive,  the  makers  of  them  are  nat- 
ually  anxious  to  see  what  the  outcome  will  be.  Any 
suspicion  that  a  report  may  be  put  aside  and  forgotten 
breeds  a  spirit  of  indifference  that  will  invalidate  the 
correctness  of  every  succeeding  one.  But  if  the  under- 
standing is  general  that  the  heads  of  departments  are 
to  be  called  into  conference  upon  important  reports,  each 
person  concerned  with  the  report  will  do  his  best  to  make 
a  good  appearance.  In  considering  any  of  the  execu- 
tive reports  mentioned  above  the  committee  might  con- 
sist of  the  president,  the  treasurer  or  accountant,  the 
general  manager,  the  factory  superintendent  and  the 
sales  manager,  together  with  such  heads  of  departments 
as  may  be  immediately  concerned  with  the  results  of  the 
discussion. 

Such  a  committee  meeting  should  proceed  under  due 
forms  and  according  to  some  definite  program.  The 
president  acts  as  chairman  and  the  various  reports  are 
considered  in  order  of  their  importance.  Generally  this 
will  be  in  accordance  with  the  ranking  importance  of  the 
officers.  Accordingly  the  general  manager  presents  a 
critical  estimate  of  the  general  business  situation  of  the 
firm.  This  may  involve  the  sales  manager,  provided 
there  is  a  general  falling  off  in  some  direction,  and  he 
will  be  called  upon  to  explain.  If  the  conditions  are 

11—13 


194  BUSINESS  ORGANIZATION 

beyond  his  control,  such  as  some  new  form  of  competi- 
tion, it  rests  with  the  committee  to  suggest  the  best 
means  for  meeting  it.  Each  item  of  the  report  is  taken 
up  and  discussed  likewise.  The  executive  report  is  fol- 
lowed by  the  reports  of  the  sales  manager.  He  may 
suggest  an  improvement  in  the  product  as  demanded  by 
the  trade  or  some  feature  of  the  expense  items  may  need 
to  be  defended.  The  same  general  discussion  follows 
this  report  as  it  does  all  others. 

The  factory  superintendent  must  in  his  turn  stand 
sponsor  for  the  reports  pertaining  to  output  and  effic- 
iency, progress  of  work  and  improved  methods  and  in- 
ventions. 

If  the  treasurer  heads  the  general  financial  as  well  as 
the  accounting  department  he  will  be  expected  to  deal 
with  matters  pertaining  to  credits  and  collections — es- 
pecially where  those  matters  are  influenced  by  the  rate 
or  date  of  delivery  as  stated  in  the  "progress  of  work 
report." 

This  immediate  and  definite  action  upon  the  reports 
is  supplemented  in  its  effect  by  the  publicity  given  to 
every  item,  and  if  human  nature  can  be  counted  on  to 
slight  these  reports  where  no  notice  or  tardy  notice  is 
taken  of  them,  it  can  be  likewise  depended  upon  to  put 
forth  its  highest  efforts  when  due  credit  and  importance 
is  shown  to  be  attached  to  them. 


PART  II:  BUSINESS  MANAGEMENT 

CHAPTER  I 

PRINCIPLES    OF    MANAGEMENT 

1.  Cardinal  elements  of  management. — Management 
implies  three  things — a  force,  a  purpose  or  result  to  be 
obtained,  and  a  director  of  this  force  toward  the  desired 
end.    If  any  one  of  these  three  things  is  omitted  in  any 
activity,  no  such  thing  as  management  is  possible. 

A  baseball  team  illustrates  this  statement.  The 
members  represent  the  force  to  be  managed.  Each 
player  is  a  human  dynamo.  The  winning  of  the 
game  supplies  the  purpose  and  the  captain  directs  the 
general  play  to  this  end. 

The  extent  to  which  the  word  "force"  is  used  to  name 
the  body  or  machine  employing  force  is  significant  in 
itself.  We  often  speak  of  the  "police  force,"  the  "work- 
ing force,"  etc.,  when  we  mean  the  body  of  men  which 
supplies  the  energy  or  force  to  be  used  in  carrying  out 
any  project. 

2.  Every  principle  implies  a  force. — The  most  im- 
portant thing  about  management  then  is  that  it  deals 
with  forces,  i.  e.,  energy.     This  fact  alone  raises  busi- 
ness  management   into   the   realm   of   those   subjects 
worthy  of  being  treated  scientifically.    "Scientific  man- 
agement" would  be  meaningless  jargon  if  forces  were 
not  involved.    And  it  is  well  for  the  business  man  who 
has  thousands  of  dollars  invested  in  plants,  offices,  men, 
fixtures,  etc.,  to  realize  this  point  at  once.    It  will  enable 

195 


196  BUSINESS    MANAGEMENT 

him  to  discriminate  between  the  real  efficiency  engineer 
and  the  fake  systematizer.  The  latter  knows  nothing  of 
forces.  He  knows  only  of  forms.  The  man  who  knows 
and  realizes  the  nature  of  the  forces  working  in  a  mod- 
ern factory  or  mercantile  establishment  is  conservative. 
He  realizes  the  consequences  of  getting  in  the  way  of 
these  forces.  A  fool  will  try  to  stop  a  flywheel  with  a 
piece  of  pink  cardboard.  Yet,  simply  by  reason  of  his 
assurance  born  of  ignorance,  he  may  gain  the  ear  of  an 
executive.  The  manager  who  thinks  of  his  business  in 
terms  of  the  forces  which  he  is  guiding  can  soon  put  to 
rout  the  "business  doctors." 

3.  Nature  of  business  forces. — The  promoting  of  a 
business  enterprise  is  at  bottom  nothing  more  or  less 
than  an  attempt  to  bring  the  forces  of  capital,  of  labor 
and  of  land  together  in  just  those  proportions  and  with 
such  effectiveness  that  the  highest  profits  will  result 
from  their  combined  efforts.  There  is  no  common  busi- 
ness name  for  the  manager  of  such  an  enterprise  in  the 
earliest  or  formative  period  of  an  undertaking.  The 
economist  calls  such  a  man  an  enterpriser.  If  the  title 
of  "promoter"  had  not  become  so  closely  associated  with 
the  raising  of  capital  or  effecting  combinations  of  cap- 
ital to  the  almost  total  exclusion  of  the  other  two  forces 
of  business,  this  name  would  more  fully  express  the 
function  of  such  a  person  than  any  other  word.  But 
whatever  his  name,  such  a  man  is  a  manager  par  ex- 
cellence. His  plans  involve  the  primary  union  of  the 
three  business  forces,  capital,  labor  and  land.  Poor 
management  at  this  point  means  hampered  production, 
poor  distribution  or  lean  markets  after  the  business  is 
set  going. 

Let  the  reader  adjust  himself  at  once  to  this  new 
point  of  view  that  management  is  interested  in  forces 


PRINCIPLES    OF    MANAGEMENT  197 

and  not  alone  in  things,  methods  and  forms.  If  the 
idea  seems  abstract  that  management  begins  before  the 
money  is  raised  or  the  factory  started,  the  notion  can 
be  given  a  concreteness  by  thinking  of  the  number  of 
failures  of  managers  of  production  whose  efforts  and 
plans  were  useless  because  some  incompetent  enter- 
priser had  started  the  business  with  too  little  regard 
for  his  labor  supply.  Or  it  might  be  well  to  look  into 
the  history  of  many  managers  of  distribution,  men  who 
were  doomed  to  failure  from  the  start  because  some  en- 
terpriser had  overlooked  the  important  part  which  loca- 
tion bears  in  relation  to  freight  rates  or  delivery  advan- 
tages. Or,  again,  the  reader  may  find  numberless  exam- 
ples of  good  sales  managers  whose  efforts  were  handi- 
capped for  years  because  they  could  not  develop  their 
markets  through  a  lack  of  sufficient  working  capital. 

Management,  then,  deals  with  the  three  sources  of 
force  or  energy — capital,  labor  and  land.  From  the 
very  moment  when  these  three  agents  are  brought  into 
a  business  by  the  enterpriser  until  the  producing,  the 
selling,  shipping  and  recording  of  the  results  have  taken 
place,  all  of  these  factors  are  present.  The  manage- 
ment should  never  lose  sight  of  their  important  influ- 
ence. A  strike  which  involves  trouble  with  the  labor 
force  may  mean  many  hours  of  anxiety  for  the  manager 
but  the  labor  loss  may  be  as  nothing  compared  to  the 
capital  losses  in  interest,  depreciation  and  market  disor- 
ganization incurred  during  the  shut-down. 

4.  The  manager  must  direct  forces. — The  complexity 
and  extent  of  the  workings  of  a  modern  factory  are 
forcing  the  question  of  management  to  the  attention  of 
both  stockholders  and  the  public.  The  stockholders 
are  interested  in  their  profits.  The  consuming  public  is 
troubled  about  the  high  cost  of  living.  Both  are  be- 


198  BUSINESS    MANAGEMENT 

ginning  to  believe  that  their  interests  could  be  better 
served  if  the  managers  of  production  were  specialists  in 
management  rather  than  composites  of  abilities  ranging 
from  the  requisites  of  a  good  office  boy  to  the  accom- 
plishments of  a  mechanical  expert. 

A  manager  must  direct  forces.  He  cannot  be  tied  to 
the  details  of  an  office,  of  a  department  or  of  an  organi- 
zation. His  special  work  is  cut  out  for  him  by  the 
forces  which  he  handles  and  the  object  which  he  must 
attain  in  their  direction  or  management. 

The  mechanical  engineer,  the  electrical  engineer,  the 
locomotive  engineer,  etc.,  have  their  own  special  prov- 
inces. Each  is  a  specialist  in  the  control  of  his  par- 
ticular form  of  power.  But  it  has  often  been  expected 
of  managers  of  production  that  they  be  not  only  tech- 
nical experts  in  various  branches  of  an  industry  but 
that  they  be  expert  handlers  of  men  and  judges  of  busi- 
ness methods  as  well. 

The  discussions  and  investigations  of  big  business 
operations  during  the  past  few  years  have  so  focused 
attention  upon  the  manager  that  we  are  able  to  see  his 
true  relation  to  the  organization  in  a  better  light  than 
ever  before. 

The  Universal  Audit  Company  of  New  York  shows 
the  relationship  of  the  two  chief  forces  with  which  the 
manager  must  deal  in  a  very  simple  way  in  the  chart  on 
the  following  page. 

It  will  be  here  observed  that  the  capital,  land  and 
labor  forces  have  taken  the  form  of  plant  and  equip- 
ment, materials,  supplies  and  men.  The  manager, 
therefore,  has  jurisdiction  over  these  things  as  well  as 
charge  of  the  inspection  of  product  and  purchases.  The 
two  types  of  physical  energy  which  are  most  evident 
in  production  and  which  the  manager  must  control  are 


PRINCIPLES    OF    MANAGEMENT 


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200  BUSINESS    MANAGEMENT 

those  produced  by  fuel  in  conjunction  with  a  machine 
and  those  which  come  from  food  when  converted  into 
the  muscle  and  brains  of  men.  When  the  full  impor- 
tance of  these  factors  in  management  is  realized,  it  be- 
comes evident  at  once  how  futile  are  systems  and 
schemes  of  control  which  only  provide  records  of  re- 
sults, but  ignore  the  forces  which  produce  results. 

5.  Human  engineering. — It  has  been  supposed  until 
very  recently  that  engineering  had  to  do  solely  with  the 
intelligent  development  and  control  of  that  energy 
which  depended  upon  fuel  and  the  machine.  Accord- 
ingly, the  mechanical  engineer  early  became  a  recog- 
nized aid  in  the  management  of  a  plant  and  factory. 
But  now  that  business  men  are  beginning  to  analyze 
their  productive  processes,  the  profession  of  engineering 
has  been  extended  to  include  the  development  and  con- 
trol of  that  energy  which*  displays  itself  through  the 
minds  and  bodies  of  men. 

A  study  of  Figure  1  shows  the  main  lines  of  activities 
which  these  two  forms  of  physical  force  follow.  The 
physical  energy  coming  from  the  food  which  a  man 
eats  shows  itself  in  either  bodily  or  mental  activities  of 
the  worker.  In  the  factory  we  may  thus  divide  the 
workers  into  brain  laborers  and  body  laborers  and  so 
throw  into  bold  relief  at  once  the  basic  problems  of 
management.  These  are  the  prime  factors  which  lie  at 
the  bottom  of  all  permanent  productive  efficiency.  The 
managers  must  find  the  best  way  to  develop  this  human 
power  and  conserve  its  energy.  Looked  at  in  this  light, 
it  is  not  a  matter  of  indifference  to  the  management 
what  the  foremen,  the  laborers  and  others  eat  and  drink 
outside  of  factory  hours.  Nor  is  it  compatible  with  the 
principles  of  business  management  to  ignore  the  socio- 
logical conditions  which  surround  the  workers  at  home 


PRINCIPLES    OF    MANAGEMENT  201 

or  in  the  shop.  Anything  which  dissipates  the  energy 
of  the  worker  is  a  handicap  to  the  productive  efficiency 
of  the  factory.  Welfare  work,  medical  service,  indus- 
trial betterment  are  growing  and  spreading  among  the 
world's  great  industries.  This  happens  simply  because 
it  is  good  business  policy.  If  welfare  work  succeeds,  it 
does  so  because  it  develops  and  conserves  the  human 
working  force.  It  pays  for  itself  in  productive  effi- 
ciency and  not  merely  in  its  advertising  possibilities. 

6.  The  basic  principle  in  management. — Little  need 
be  said  about  the  power  which  manifests  itself  through 
the  aid  of  machines.  This  force  in  production  is  very 
evident  and  its  utilization  has  been  the  point  of  attack 
for  over  a  hundred  years  or  more.  In  fact,  so  much 
attention  was  given  to  this  factor  that  the  managers  of 
great  enterprises  overlooked  nearly  all  the  other  ele- 
ments in  production.  To  get  a  new  piece  of  equipment, 
a  machine,  a  filing  cabinet,  an  adding  machine,  seemed 
to  mark  the  climax  of  many  a  manager's  ambition. 
Concentration  upon  this  single  side  of  the  proposition 
has  brought  its  penalties  as  well  as  its  rewards.  Man- 
agers fixed  their  eyes  upon  the  size  of  their  output. 
Bulk,  production  on  a  large  scale,  tonnage,  became  the 
great  words  in  managerial  circles.  To  get  this  result 
the  machine  was  developed  to  the  highest  point.  Me- 
chanical invention  was  the  only  thing  considered  and  the 
mechanical  engineer  became  the  most  important  mem- 
ber of  the  staff  of  managerial  experts. 

But  finally  the  machines  became  so  plentiful,  the  fac- 
tories covered  so  much  space,  the  output  got  so  large, 
the  employes  numbered  so  many  thousands,  that  the 
energy  which  was  developed  and  directed  by  means  of 
the  mechanical  equipment  began  to  be  lost  and  wasted. 
The  old  standards  of  achievement  could  not  be  main- 


BUSINESS    MANAGEMENT 

tained  and  the  management  began  to  ask  itself  the  rea- 
son. The  inquiry  led  to  the  basic  principle  in  manage- 
ment which  deals  with  the  conservation  of  energy  and 
the  correlation  of  the  forces  of  production.  When  this 
point  was  reached  many  problems  arose  which  had  not 
up  to  that  time  intruded  themselves.  For  example,  the 
question  of  fuel  supply  was  no  longer  a  question  of 
weight  but  of  heating  power.  The  belting  problem  was 
no  longer  a  question  simply  of  price  per  foot,  but  of 
lost  power  through  inattention  to  the  proper  belt  ten- 
sions, etc.  And  thus  we  might  run  through  the  whole 
list  of  problems  of  management  and  find  that  in  their 
last  analysis  they  all  resolve  themselves  into  terms  of 
power,  force,  or  energy. 

7.  The  purpose  of  management  is  profits. — Perhaps 
this  point  does  not  need  emphasis,  but  it  is  well  to  draw 
attention,  while  so  much  is  being  said  about  the  methods 
of  gaining  productive  efficiency,  to  the  fact  that  the 
ultimate  purpose  is  profits.  A  saving  of  energy  for- 
merly lost  or  the  institution  of  a  frictionless  organiza- 
tion may  have  other  purposes  than  increasing  or  main- 
taining the  profits;  but  unless  these  things  bear  upon 
this  element  somewhere  in  the  course  of  the  firm's  opera- 
tions they  should  be  counted  up  to  the  concern's  philan- 
thropies or  advertising  and  not  to  its  productive  man- 
agement. The  manager  or  efficiency  engineer  or  who- 
ever he  may  be  who  cannot  organize  or  reorganize  a 
system  of  management  without  sacrificing  permanent 
profits  has  not  the  faintest  conception  of  the  nature  of 
his  work.  Such  a  person  is  generally  trying  "to  install 
a  system."  However,  it  should  be  borne  in  mind  that 
a  thorough-going  plan  of  management  may  and,  for 
that  matter,  generally  does  involve  an  outlay  of  money 
which  may  not  immediately  show  returns.  The  con- 


PRINCIPLES    OF    MANAGEMENT  203 

struction  of  a  suitable  foundation  for  a  building  may 
not  show  its  advantages  over  a  flimsy  structure  for  sev- 
eral years,  yet  a  wise  business  policy  would  not  sacrifice 
the  permanent  profits  for  the  sake  of  immediate  sav- 
ings., 

8.  \Lmmediate  versus  future  profits. — No  one  busi- 
ness policy  has  caused  the  wrecking  of  so  many  firms 
and  the  shattering  of  so  many  managerial  reputations 
as  that  of  paying  dividends  regardless  of  the  means  or 
source  of  income^  A  manager  must  gain  the  profits 
by  putting  the  materials  and  forces  of  production 
through  certain  processes.  The  legitimate  gains  of  his 
activity  as  manager  show  in  a  product  of  higher  value. 
He  starts,  we  will  say,  with  a  ton  of  iron  ore  and  after 
many  smeltings  and  purifyings  and  temperings,  thou- 
sands of  fine  steel  springs  are  produced.  So  long  as 
quality  determines  value,  and  value  determines  price, 
the  manager's  duties  are  to  shape  his  methods  toward 
meeting  and  maintaining  that  market,  the  judgment  of 
which  passes  upon  the  quality  of  all  products.  He, 
therefore,  turns  out  steel  springs  of  a  quality  that  satis- 
fies the  particular  demand  for  that  product.  His  influ- 
ence upon  the  profits  will  show  in  maintaining  the  qual- 
ity demanded  by  the  customers  and  in  his  ability  to  ef- 
fect economies  in  the  use  of  the  forces  of  production 
and  the  handling  of  his  productive  organization. 

But,  being  urged  to  show  immediate  results,  many 
managers  have  tried  to  short-circuit  their  forces  of  pro- 
duction. Instead  of  putting  the  capital  meant  for  ma- 
terials, new  machines,  new  roadbed,  new  cars,  etc.,  into 
these  investments  of  production — investments  which 
would  have  brought  profits  in  the  future — some  man- 
agers have  short-cut  the  process  and  put  the  capital  di- 
rectly into  the  dividends.  The  "skinning"  of  many  rail- 


204  BUSINESS    MANAGEMENT 

road  properties  and  industrial  plants  by  this  "short- 
circuit"  process  was  too  common  a  few  years  ago.  It  is 
not  unknown  to-day  and  it  is  a  very  alluring  method  for 
a  young  or  inexperienced  manager  when  a  short-sighted 
directorate  insists  on  "results. " 

This  practice  of  sacrificing  the  permanent  profits  for 
the  immediate  "showing"  is  not  less  fatal  when  applied 
to  the  business  organization  of  a  company  than  when 
used  to  "skin"  the  equipment.  Poor  routing  of  ma- 
terials through  the  shops,  stock  timekeeping,  persistent 
soldiering,  bungling  storekeeping,  etc.,  may  mean  a 
very  cheap  organization  for  a  certain  period  but  the 
effects  of  such  disorganizing  elements  upon  the  output 
of  a  plant  will  prove  in  the  end  to  be  even  more  damag- 
ing than  the  mere  skinning  of  the  capital  or  equipment. 

9. 1  Difference  between  manager  and  engineer. — Man- 
agement, therefore,  involves  not  only  the  forces  of  pro- 
duction but  careful  consideration  of  the  results  to  be 
obtained,  i.  e.,  the  profits.  It  is  this  latter  purpose 
which  distinguishes  the  man  with  managerial  ability 
from  the  purely  technical  man.)  The  mechanical  en- 
gineer may  be  able  to/control  and  develop  the  produc- 
tive forces  in  a  plant,  (in  fact,7  a  specialist  of  this  kind 
is  absolutely  necessary,  JJfct  his  point  of  view  is  nar- 
rowed to  the  activity  of  the  machine  and  the  machine's 
tender.)  He  is  interested  in  supplying  power  and  ma- 
chines for  getting  out  articles  according  to  certain  di- 
mensions and  specifications.  (The  manager  must  be 
able  not  only  to  judge  the  mechanical  necessity  of  this 
activity  but  also  to  estimate  its  effect  on  the  commer- 
cial end  of  the  business.  Commercial  appraisal  must 
supplement  technical  judgment?;  Many  illustrations 
of  this  difference  in  abilities  might  be  cited  from  the 
experience  of  shop  men  who  have  seen  many  a  fine  ar- 


PRINCIPLES    OF    MANAGEMENT  205 

ticle  from  the  engineers'  point  of  view  sent  into  the 
factory,  only  to  be  torn  to  pieces  and  ruthlessly  changed 
by  the  manager  who  had  to  meet  commercial  condi- 
tions. 

10.  Specialization    complicates    management. — Spe- 
cialization is  both  a  result  and  a  cause  of  machinery; 
therefore,  we  find  the  two  developing  side  by  side.    So 
far  as  the  modern  industrial  organization  is  concerned, 
it  makes  little  difference  whether  we  speak  of  it  in  terms 
of  specialization  or  in  terms  of  machinery.    A  study  of 
any  industry  will  soon  show  how  complex  its  organiza- 
tion has  become,  due  to  the  number  of  specialties  into 
which  every  process  is  divided.    Generally  each  division 
requires  a  new  machine  or  tool.     If  we  compare  the 
present  organization  with  the  organization  of  a  similar 
industry  of  fifty  years  ago  we  discover  that  although 
the  number  of  men  necessary  to  produce  a  given  quan- 
tity of  product  has  greatly  diminished,  the  quantity 
put  out  under  one  management  has  itself  so  increased 
that  the  number  of  employes  has  increased  and  the 
number  of  machines  has  multiplied  accordingly. 

The  manager  has  been  engulfed  in  a  sea  of  indus- 
trial specialization.  The  correlation  of  all  these  spe- 
cial activities  has  overtaxed  the  abilities  of  managers 
for  years,  that  is,  where  they  have  given  this  element 
of  management  the  consideration  it  deserves  and  not 
simply  stumbled  along  trying  to  meet  every  difficulty 
by  adding  a  new  machine — a  method  not  unlike  that 
of  a  tired  man  urging  his  flagging  energies  to  new 
efforts  by  taking  stimulants.  They  get  him  over  the 
present  difficulty  but  they  leave  him  not  only  debili- 
tated but  hindered  by  the  addition  of  the  drug  itself 
which  clogs  his  system. 

11.  Specialization  in   management. — Not   so  many 


206  BUSINESS    MANAGEMENT 

years  ago  it  was  the  custom  to  defend  the  advantages  of 
specialization  against  the  virtues  of  all-round  skill— 
the  expert  against  the  all-round  man.  But  there  is 
little  argument  to-day.  The  economic  superiority  of  the 
expert  is  too  much  in  evidence  to  allow  any  argument. 
The  "jack  of  all  trades"  has  disappeared.  The  change 
makes  for  special  dexterity  and  great  saving  in  time 
and  money.  Preparatory  expenses  are  greatly  reduced 
and  much  time  in  changing  from  one  job  to  another  is 
saved. 

To-day  there  is  a  new  form  of  specialization  going 
on,  which  being  more  difficult  to  represent  in  a  concrete 
form  is  not  so  easily  understood  nor  so  readily  accepted 
by  the  manager.  We  refer  to  the  specialization  taking 
place  in  the  field  of  management  itself.  Some  firms  in- 
stead of  employing  one  foreman  to  look  after  a  whole 
department  are  breaking  up  the  work  into  several  parts 
and  are  putting  specialists  in  charge  of  each.  Thus 
there  may  be  a  gang  boss,  a  speed  boss,  a  disciplinarian, 
where  once  there  was  only  a  foreman.  As  it  is  not 
easy  to  figure  the  results  of  management  specialization 
in  terms  of  a  machine's  output — a  concrete  thing  which 
can  be  shaped  and  handled  and  measured — many  execu- 
tives are  backward  in  recognizing  the  same  economies 
here  that  they  have  so  eagerly  exploited  in  the  field  of 
technical  and  mechanical  specialization. 

12.  Department  specialization. — Between  the  two 
extremes  of  specialization,  that  of  the  machine  at  one 
end  and  that  of  the  management  at  the  other,  comes  an 
intermediate  type  of  specialization.  This  may  be  called 
departmental  specialization,  and  often  serves  as  a  step 
to  the  more  advanced  form  of  specialized  management. 
This  intermediate  type  is  illustrated  in  the  Pierce- Ar- 
row Motor  Car  Works.  Here  all  lathes  are  divided 


PRINCIPLES    OF    MANAGEMENT  207 

into  groups  and  subgroups.  The  main  groups  are  put 
into  departments  by  themselves  and  are  there  arranged 
into  subgroups  according  to  the  size,  class  of  work,  etc. 
For  instance,  one  section  is  known  as  the  turret  depart- 
ment and  is  divided  into  subgroups  of  automatic  check- 
ing machines,  automatic  screw  machines,  flat  and  hexa- 
gon, turret  lathes  and  hand  screw  machines.  The 
larger  turret  lathes  of  the  Gisholt  type  are  not  included 
in  the  department,  but  form  separate  groups.  The 
hand  and  spur  gear  cutters  form  separate  groups.  The 
millers  are  classified  as  vertical,  horizontal,  Lincoln  type 
and  hand  groups.  The  drillers  are  divided  into  radical, 
heavy  duty,  medium  and  sensitive  groups.  The  grind- 
ers are  grouped  as  internal,  plain  and  surface.  Special- 
ized supervision  is  thus  naturally  induced  to  a  limited 
degree,  for  an  assistant  foreman  is  put  in  charge  of  each 
subdivision  of  machines  and  is  responsible  to  the  fore- 
man who  has  direct  charge  of  the  departmental  groups. 

The  necessity  for  this  growing  practice  of  depart- 
mental grouping  is  due  to  the  great  burden  which  ex- 
tensive specialization  in  the  agents  of  production  has 
put  upon  the  manager.  Departmental  grouping  is  an 
attempt  to  bring  as  many  common  factors  as  possible 
into  one  group  for  purposes  of  supervision  arid  thus 
provide  a  more  efficient  means  of  watching  the  wastes 
and  coordinating  the  efforts  of  many  individual  and 
highly  specialized  machines.  The  experiment  of  the 
Fierce-Arrow  Company  shows  a  practical  application 
of  the  economic  principle  that  coordination  is  a  neces- 
sary complement  to  specialization  if  the  highest  effi- 
ciency is  to  be  obtained.  J 

13.  Cooperation  and  specialization  must  go  together. 
— Just  as  the  forces  of  a  business  must  be  correlated, 
and  the  machine  process  coordinated,  so  must  the  labor- 


208  BUSINESS    MANAGEMENT 

ing  force  cooperate  in  order  to  let  specialized  employ- 
ment and  divisions  of  labor  produce  their  full  results. 
The  enormous  product  turned  out  by  the  factories  and 
transportation  systems  of  to-day  is  possible  because  the 
machine  has  developed  into  a  specialist  of  the  highest 
type.  However,  specialization  does  not  stop  with  the 
factory  processes,  the  warehouse,  the  bank  or  the  trans- 
portation system.  The  management  of  these  various 
business  activities  is  dividing  itself  more  and  more 
into  specialties.  Instead  of  one  man  trying  to  do  all 
the  work  of  managing  a  factory  he  has  called  to  his  aid 
superintendents,  foremen,  and  bosses. 

This  is  the  predominant  type  at  present  but  it  is  rap- 
idly becoming  modified.  The  machines,  the  men,  the 
departments,  the  responsibilities  of  a  large  factory  are 
so  numerous  that  further  specialization  must  go  on  if 
this  century  is  to  keep  up  with  the  last  in  producing 
goods. 

The  duties  of  the  superintendents,  the  foremen,  etc., 
must  be  broken  up  into  a  number  of  specialties  and  each 
given  into  the  hands  of  men  trained  to  guide  and  direct 
these  particular  activities.  We  see  the  beginning  in  the 
case  of  the  superintendent  who  is  no  longer  expected  to 
be  an  expert  draughtsman,  nor  is  it  thought  necessary 
in  some  shops  for  the  foreman  to  be  an  expert  machin- 
ist, a  toolmaker  and  a  practical  psychologist  in  the  hir- 
ing and  firing  of  men. 

14.  Is  there  a  science  of  management? — There  is  no 
word  in  the  English  language  used  with  greater  disre- 
gard for  exactness  in  meaning  than  the  word  science. 
We  speak  of  a  science  of  astronomy  and  also  of  a  science 
of  salesmanship.  If  astronomy,  with  its  well  determined 
principles  and  its  power  of  forecasting  results  by  means 
of  them,  is  a  science,  then  salesmanship  can  lay  little 


PRINCIPLES    OF    MANAGEMENT  209 

claim  to  such  a  title.  But  if  we  examine  the  nature  of 
salesmanship  and  discover  that  its  propositions  are 
founded  on  the  determination  of  certain  mental  forces, 
then  we  know  that  the  claim  of  salesmanship  to  be  called 
a  science  does  not  rest  upon  the  progress  which  has 
been  made  in  the  exact  determination  of  the  forces  and 
their  action,  but  upon  the  discovery  that  salesmanship 
deals  with  the  laws  of  force  and  energy.  It  might  per- 
haps be  better  if  we  did  not  speak  of  advertising,  sales- 
manship, etc.,  as  sciences  since  the  implication  is  that 
they  have  reached  a  degree  of  exactness  similar  to  that 
attained  in  those  physical  sciences  upon  whose  laws  so 
much  of  our  modern  industry  depends.  At  present  the 
various  branches  of  business  activity  have  not  been  re- 
duced to  the  category  of  exact  sciences.  About  all  that 
should  be  claimed  for  them  is  that  some  parts  of  the 
business  field,  such  as  salesmanship,  marketing,  manage- 
ment, have  adopted  scientific  methods  in  their  attempt 
to  study  the  nature  of  the  problems  before  them. 

15.  Scientific  methods  of  investigation. — So  far  the 
discussion  has  grouped  itself  about  the  proposition  that 
all  scientific  knowledge  rests  upon  one  great  underlying 
principle — the  conservation  of  energy  and  the  correla- 
tion of  forces.  There  are,  however,  two  ways  in  which 
a  subject  may  be  studied.  These  may  be  called  the 
"speculative"  method  and  the  "practical"  method.  The 
first  of  these  has  been  largely  instrumental  in  the  de- 
velopment of  the  sciences  of  astronomy  and  biology, 
and  the  second  has  been  chiefly  employed  for  investi- 
gations in  chemistry.  Sciences  differ  among  themselves 
in  the  extent  to  which  one  or  the  other  of  these  methods 
is  used;  and  it  is  essential  that  a  new  science  adopt  as 
soon  as  possible  the  method  most  suitable  for  its  devel- 
opment. So  far  as  management  is  concerned,  both 

11—14 


210  BUSINESS    MANAGEMENT 

methods  are  applicable  to  a  certain  degree,  but  the  prac- 
tical method,  in  which  experiment  is  the  basis  of  drawing 
scientific  conclusions,  is  the  method  which  must  pre- 
dominate. 

There  are  only  a  few  deductions  which  can  be  em- 
ployed in  the  science  of  management.  Such  as  they  are, 
they  are  most  important  since  they  serve  as  goals  toward 
.which  the  experiments  in  and  analysis  of  factory,  shop 
and  office  conditions  may  work.  This  goal  is  the  avoid- 
anQe  of  waste  and  the  gaining  of  increased  power  by  a 
thorough  knowledge  of  men,  machines  and  conditions. 
If  investigators  of  management  problems  would  only 
keep  this  one  ide?  clear,  they  would  then  be  at  least  in 
the  right  attitude  to  begin  their  study.  With  this  goal 
in  view  the  investigator  can  then  follow  the  practical 
method  and  not  confuse  his  principles  with  the  mechan- 
ism. Such  an  investigator  will  hold  the  factory  or  shop 
at  arm's  length  and  not  feel  bound  by  "traditions  and 
prejudices.  He  studies  the  departments  as  a  whole  and 
compares  them  with  his  knowledge  of  other  plants. 
This  method  enables  him  to  analyze  the  proposition  into 
units  which  permit  of  numberless  experimental  recom- 
binations. 

All  this  takes  time  and  patience,  for  superficiality 
has  no  place  in  any  science.  Mr.  F.  W.  Taylor,  for 
instance,  to  achieve  one  result,  performed  50,000  experi- 
ments all  of  which  were  recorded,  studied  and  classi- 
fied; they  involved  an  outlay  of  material  amounting  to 
800,000  pounds  of  steel  and  an  expenditure  of  $200,000 
in  money.  The  same  care  and  attention  must  also  be 
given  where  the  data  to  be  collected  pertains  to  men  and 
not  material.  The  laws  of  fatigue  and  rest  are  even 
more  complex  than  the  laws  of  materials.  It  is  not  till 
these  laws  have  been  discovered  that  standards  of  pro- 


PRINCIPLES    OF    MANAGEMENT 

duction  can  be  established  and  methods  set  forth  for 
their  accomplishment. 

Having  once  got  the  general  proposition  in  mind, 
the  management  investigator  can  go  after  his  facts. 
These  he  will  carefully  select  after  observation  and  ex- 
periment and  then  formulate  those  laws  by  which  he  can 
select  his  machines,  material  and  men.  Some  laws  will 
become  standards  by  which  the  working  men  in  any 
particular  department  may  be  scientifically  selected. 
The  men  who  are  physically  or  temperamentally  unfit- 
ted to  perform  the  duties  in  that  particular  department 
may  be  taken  out  and  fitted  into  some  other  place  more 
congenial  to  their  particular  abilities.  Redistribution 
of  men  of  this  kind  results  in  a  total  increase  of  effi- 
ciency without  drawing  forth  more  labor  energy  from 
men  and  machines.  The  results  will  show  not  only  that 
a  scientific  method  was  used  but  that  a  scientific  object 
was  obtained. 

16.  Continual  study  and  progress. — A  first  practical 
rule  in  the  application  of  this  scientific  method  of  adapt- 
ing the  instrument  to  purpose  demands  not  only  a  redis- 
tribution of  responsibilities  but  the  establishment  of  in- 
timate cooperation  between  managers  and  men.  This 
may  be  called  the  rule  of  sympathetic  cooperation  in 
which  there  is  "mutual  recognition  of  the  possibility  of 
mutual  helpfulness."  An  example  of  this  practice  is 
seen  in  those  shops  where  the  chief  distribution  of  func- 
tions consists  of  dividing  the  purely  mechanical  and 
muscular  operations  from  those  requiring  brains  and 
planning,  and  then  selecting  men  who  are  particularly 
fitted  for  each  kind  of  work.  This  division  and  redistri- 
bution of  the  functions  necessitates  a  greater  degree  of 
planned  cooperation  between  the  two  groups  than  was 
found  under  the  old  style  of  management.  Under  the 


BUSINESS    MANAGEMENT 

old  system  the  workman  is  left  to  determine  the  method 
of  doing  his  work  as  well  as  the  performing  of  the  actual 
job.  Under  the  system  where  the  function  of  planning 
is  separated  from  the  performance,  the  method  is  given 
into  the  hands  of  an  expert  body  of  planners  and  the 
workmen  are  left  free  to  apply  all  their  energy  to  the 
one  thing — the  doing  of  the  work. 

Scientific  management,  however,  does  not  rest  with 
experiments  alone.  It  requires  that  the  facts  having 
once  been  obtained  should  be  used  for  the  continual  ad- 
vancement of  the  organization.  The  first  rule  for  the 
practical  administration  of  the  laws  and  principles 
which  have  been  deduced  should  be  the  selection  of 
proper  instructors  to  teach  the  men  upon  whom  the  pro- 
duction of  the  plant  depends.  Under  this  rule  a  work- 
man once  discovered  and  assigned  to  a  duty  to  which 
he  is  especially  adapted  is  kept  at  his  highest  point  of 
efficiency  by  being  continually  helped  and  taught  how 
best  to  do  his  work.  The  factory  thus  ceases  to  be  a 
"mill"  and  becomes  a  school  instead. 

A  law  is  limited  by  the  circumstances  which  condition 
it.  Before  any  specific  devices  are  discussed  by  which  a 
business  enterprise  may  be  changed  from  a  "hit  and 
miss"  sort  of  management  to  one  under  a  system  of 
carefully  studied  control  and  direction,  it  may  be  well 
to  throw  out  this  caution.  Although  a  law  once  formu- 
lated is  fixed  by  the  conditions  which  made  it,  there  is 
no  assurance  that  the  conditions  will  not  change.  In 
fact  conditions  are  ever  shifting  and  as  a  consequence 
new  observations  and  new  experiments  will  result  in 
the  derivation  of  new  laws.  No  manager  should  assume 
that  any  conclusion  he  may  reach  is  final.  A  rule  of  ac- 
tion which  may  guide  the  organization  to-day  to  higher 
planes  of  efficiency  may  later  be  rendered  obsolete  by 


PRINCIPLES    OF    MANAGEMENT  213 

a  new  set  of  conditions  and  higher  standards  of  accom- 
plishment. The  manager  who  approaches  his  subject  in 
the  spirit  of  a  scientist  never  stops  because  a  cost  has 
been  reduced.  Nothing  is  final  with  him  but  the  possi- 
bility of  further  reductions  and  the  discovery  of  new 
and  important  laws  by  which  these  reductions  may  be 
made. 

17.  What  the  science  of  management  involves. — A 
science  of  management  involves  a  natural  force,  an  in- 
ductive method  of  study  and  a  distribution  and  group- 
ing of  activities  according  to  functions. 

One  of  the  great  difficulties  in  getting  business  men 
to  see  that  management  is  anything  more  than  just 
"common  sense"  is  their  disinclination  to  listen  to  any- 
thing which  smacks  of  theory  or  principles.  They  as- 
sume that  common  sense  deals  with  concrete  things  while 
theory  deals  with  abstractions.  The  truth  is  that  com- 
mon sense  is  not  disassociated  from  theory.  The  thing 
which  people  call  common  sense  is  simply  the  working 
out  of  the  theory  or  principle  through  concrete  things. 
The  phenomena  being  familiar  and  the  causes  and  ef- 
fects being  in  harmony  with  ordinary  experience,  the 
proposition  is  spoken  of  as  simply  common  sense.  The 
trouble  arises  when  the  ordinary  man  mistakes  the  illus- 
tration of  a  fact  or  principle  for  the  principle  itself  and 
thinks  he  has  dodged  all  responsibility  for  thoroughness 
of  investigation  and  carefulness  in  recording  and  study- 
ing data  by  calling  the  whole  thing  simply  a  question  of 
common  sense.  To  the  janitor  the  putting  of  salt  on 
an  icy  sidewalk  is  simply  a  question  of  common  sense; 
to  the  chemist  it  is  a  problem  in  chemical  affinity.  To 
the  ordinary  "boss"  the  following  example  taken  from 
Mr.  F.  W.  Taylor's  experience  will  appeal  only  as  a 
common  sense  thing  to  do;  to  the  manager  looking  for 


BUSINESS    MANAGEMENT 

truths  by  which  he  may  guide  his  own  endeavors  there 
will  appear  the  great  problem  of  the  saving  of  labor 
power,  the  inductive  principle  of  investigation  and  a 
never-ceasing  struggle  to  attain  new  standards  of  effi- 
ciency— there  being  no  assumption  of  finality  in  the 
derivation  of  laws. 

Mr.  Taylor  was  looking  for  the  law  controlling  the 
efficiency  of  shoveling.  Accordingly,  he  first  selected 
the  type  of  man  who  was  best  adapted  to  the  work.  He 
did  not,  as  he  says,  take  a  trotting  horse  as  his  standard 
of  animal  to  find  out  what  a  first-class  horse  should 
do  in  hauling  coal.  So  when  he  wanted  to  study  the 
science  of  shoveling  he  selected  two  men  and  spoke  as 
follows: 

"You  are  good  shovelers;  we  want  you  to  work  squarely. 
We  are  going  to  ask  you  to  do  a  lot  of  fool  things,  and  we 
are  going  to  pay  you  double  wages  while  this  investigation  is 
going  on.  It  will  probably  last  two  or  three  months.  This 
man  will  be  over  you  all  day  long  with  a  stop-watch.  He 
will  time  you;  he  will  count  the  shovel-loads  and  tell  you  what 
to  do.  He  does  not  want  you  to  hurry;  just  go  at  your  or- 
dinary pace.  But  if  either  of  you  fellows  tries  to  soldier  on 
us,  that  will  be  the  end  of  it;  we  will  find  you  out  as  sure  as 
you  are  born,  and  we  will  fire  you  out  of  this  place.  All  we 
want  is  a  square  day's  work ;  no  soldiering.  If  you  don't  want 
to  take  that  job,  don't,  but  if  you  do  we  are  very  glad  to  pay 
you  double  wages  while  you  are  doing  it." 

These  men  took  the  job  and  did  a  fair  day's  work 
throughout  the  period  of  investigation.  Mr.  Taylor 
continues : 

"We  began  by  taking  the  maximum  load  on  the  shovel  and 
counting  the  shovelfuls  all  day  long  and  weighing  the  tonnage 
at  the  end  of  the  day.  I  think  it  was  about  thirty-eight  pounds 


PRINCIPLES    OF    MANAGEMENT  215 

to  the  shovel.  We  found  how  much  those  men  could  do  when 
they  were  shoveling  at  thirty-eight  pounds  to  the  shovel  on 
an  average  and  then  we  got  shorter  shovels  holding  about 
thirty- four  pounds,  and  measured  the  tonnage  per  day,  and 
it  was  greater  than  when  they  were  using  the  thirty-eight 
pound  shovel.  They  shoveled  more  with  the  thirty-four  pound 
shovel-loads  than  with  the  thirty-eight  pound  shovel-loads. 
Again  we  reduced  the  load  to  thirty  pounds  and  they  did  a 
still  greater  tonnage;  again  to  twenty-eight  pounds,  and  an- 
other increase;  and  the  load  kept  on  increasing  as  we  dimin- 
ished the  shovel-load  until  we  reached  about  twenty-one 
pounds,  where  the  man  did  his  biggest  day's  work.  With 
twenty  pounds,  with  eighteen  pounds,  with  seventeen,  and 
with  fourteen,  they  did  again  a  smaller  day's  work.  Starting 
with  a  thirty-eight  pound  shovel,  they  went  higher  and  higher 
until  the  biggest  day's  work  was  done  with  a  twenty-one  pound 
shovel;  but  when  they  got  the  lighter  shovel  the  load  went 
down  as  the  shovel-load  diminished." 


The  conclusion  induced  from  this  long  experiment 
was  that  the  highest  efficiency  in  shoveling  depended 
upon  supplying  the  workingmen  with  a  shovel  which 
would  hold  twenty-one  pounds  no  matter  what  the 
material  might  be. 

18.  Effect  of  a  new  standard. — But  a  standard  es- 
tablished in  one  department  meant  a  change  of  condi- 
tions in  other  departments.  The  principle  of  the  distri- 
bution of  functions  applies  as  well  to  departments  as  to 
men  and  upon  a  correct  balancing  of  them  depends  the 
success  of  a  management  which  would  avoid  waste 
through  a  correct  correlation  of  its  productive  forces. 
This  principle  is  well  illustrated  in  the  final  outcome 
of  the  experiments  with  the  shovelers.  First  the  man- 
agement had  to  build  a  shovel-room  for  the  common 
laborers.  Up  to  this  time  the  men  had  owned  their 


216  BUSINESS    MANAGEMENT 

own  shovels,  but  now  all  this  was  changed,  for  it  was 
found  necessary  to  equip  the  "shovel  room"  with  eight 
or  ten  different  types.  One  shovel,  for  instance,  would 
be  fitted  to  rice  coal;  another  would  be  suited  for  a 
very  heavy  ore,  etc.,  etc.,  but  each  would  carry  just  a 
twenty-one-pound  load. 

The  establishment  of  a  shovel  room  was  a  simple 
thing  in  itself  but  it  meant  organization  where  before 
there  had  been  none.  A  good  shovel  is  of  little  use  un- 
less the  right  laborer  has  it  at  the  right  place,  and  in  a 
yard  two  miles  long  and  half  a  mile  wide  and  employ- 
ing 600  men  doing  all  kinds  of  miscellaneous  work  the 
working  schedule  is  no  small  task.  This  meant  more 
organization  and  a  redistribution  of  managerial  func- 
tions from  the  foreman's  point  of  view.  In  place  of  the 
old-fashioned  foreman  who  walked  around  with  his  men 
and  told  them  what  to  do,  a  large  building  was  erected 
containing  a  labor  office  under  the  charge  of  three  highly 
trained  men  who,  with  their  assistants,  planned  the 
work  of  the  shovelers  at  least  one  day  ahead  of  the 
work. 

19.  Furnishing  the  men  with  a  teacher. — The  final 
element  in  business  management  is  also  illustrated  by 
the  methods  employed  in  the  above  experiment.  The 
teaching  element  is  no  new  thing  in  management.  It 
has  always  been  there,  but  generally  it  has  been  so 
mixed  up  with  other  functions  that  it  has  been  lost 
sight  of  in  these  days  of  big  and  complex  business  op- 
erations. Every  boss  is  supposed  to  be  an  instructor, 
but  he  uses  his  authority  more  often  than  his  knowledge 
of  the  particular  job  to  keep  the  laborer  to  his  pace. 

In  some  of  the  more  recent  attempts  to  discover  the 
principles  of  management  the  function  of  instructing 
has  been  again  emphasized.  This  is  seen  also  in  Mr. 


PRINCIPLES    OF    MANAGEMENT 

Taylor's  experiment  with  the  shovelers.  Having  pro- 
vided a  physical  organization  for  handling  his  600  men 
or  more,  he  made  out  a  time  table  showing  just  how 
long  it  took  the  men  to  do  each  kind  of  work.  Then  it 
devolved  upon  the  management  to  inform  the  men  each 
day  just  what  they  had  done  the  day  before  and  just 
what  they  were  to  do  that  day.  In  order  to  do  that 

"as  each  man  came  in  the  morning  he  had  to  reach  his  hand 
up  to  a  pigeonhole  (most  of  the  men  could  not  read  and  write, 
but  they  could  all  find  their  pigeonholes)  and  take  out  two 
slips  of  paper.  One  was  a  yellow  slip  and  one  was  a  white 
slip.  If  they  found  the  yellow  slips,  those  men  who  could  not 
read  and  write  knew  perfectly  well  what  was  meant.  It  was 
just  the  general  information:  'Yesterday  you  did  not  earn 
the  money  that  a  first-class  man  ought  to  earn.  We  want  you 
to  earn  at  least  60  per  cent,  beyond  what  other  laborers  are 
paid  around  Bethlehem.  You  failed  to  earn  that  much  yes- 
terday; there  is  something  wrong.'  It  was  merely  a  notice  to 
the  man  that  there  is  something  wrong.  The  other  piece  of 
paper  told  him  what  implement  to  use.  He  went  to  the  tool- 
room, presented  it,  received  the  proper  implement  and  took 
it  down  to  the  part  of  the  yard  in  which  he  was  to  work." 

But  the  instruction  of  the  men  was  not  left  with  the 
simple  information  that  they  had  "fallen  down."  This 
part  of  the  element  of  teaching  is  generally  very  ef- 
fectively employed  under  the  "boss"  system  of  manage- 
ment. To  show  the  workman  in  what  respect  he  had 
"fallen  down"  is  the  real  instruction  which  we  refer  to 
in  management.  As  soon  as  a  shoveler  was  not  making 
as  good  a  record  as  he  should,  a  teacher  was  sent  out 
to  study  the  man's  method  and  correct  the  fault. 

"In  nine  cases  out  of  ten  that  teacher  would  find  that  the 
man  had  simply  forgotten  something  about  the  art  of  shovel- 


218  BUSINESS    MANAGEMENT 

ing.  Time  and  again  we  found  that  a  man  had  forgotten  his 
instructions  and  was  throwing  the  weight  of  his  arms  instead 
of  the  weight  of  his  body  upon  the  shovel." 

The  teacher  would  stand  by  the  man  as  a  friend  and 
show  him  how  to  earn  his  premium.  Or  if,  for  instance, 
he  found  them  too  light  for  the  work  the  teacher  would 
recommend  that  the  man  be  transferred  to  a  job  better 
suited  to  his  strength.  Kindly  and  intimate  personal 
study  of  the  working  man  is  the  surest  way  to  find  the 
work  best  suited  for  each  man.  The  instructor  coor- 
dinates the  work  of  the  planning  room  with  the  work 
of  the  laborer  and  in  that  way  facilitates  the  flow  of 
productive  force  in  the  business  organization. 


CHAPTER  II 

MANAGEMENT    UNITS 

20.  Few  principles  but  many  methods. — The  princi- 
ples of  management  hold  true  in  every  kind  and  branch 
of  business.  It  makes  no  difference  whether  the  busi- 
ness unit  is  a  billion-dollar  corporation  or  a  foreman's 
department  where  pig  iron  is  handled.  But  the  meth- 
ods of  applying  these  principles  are  as  varied  as  the 
types  of  businesses  themselves.  We  might  say  that  each 
business  or  each  department  has  its  own  particular 
method  which  if  found  would  best  fit  it.  Businesses  like 
people  have  personal  characteristics  and  no  two  are 
exactly  alike.  If  each  person  were  to  be  dressed  in  the 
most  appropriate  style  it  would  be  necessary  to  put 
him  in  the  hands  of  an  expert  and  let  the  latter  study 
out  all  the  points  of  harmony  so  as  to  dress  the  customer 
accordingly.  If  such  were  the  case,  ready-made  cloth- 
ing would  disappear  and  valets  and  custom  tailors 
would  increase.  So  great,  however,  has  society  found 
the  economies  of  adopting  certain  units  such  as  hat, 
coat  and  trousers,  the  use  of  which  has  been  standard- 
ized, that  a  tailor  or  clothing  house  which  tried  to  elimi- 
nate or  seriously  modify  them  would  soon  go  out  of 
business. 

Likewise  economic  society  has  adopted  certain  busi- 
ness units  for  purposes  of  management.  Roughly  these 
units  of  management  correspond  to  a  natural  division  of 
the  anatomy  of  business  enterprises.  The  hat  is  a  unit 
of  clothing  because  the  head  is  an  anatomical  unit.  The 

219 


220  BUSINESS    MANAGEMENT 

legal  corporation  and  the  commercial  organization  are 
units  of  management  because  the  anatomy  of  a  business 
naturally  divides  itself  into  a  head  for  ownership  and 
a  body  for  production.  A  style  of  hat  which  obscured 
the  eyesight  would  sacrifice  efficiency  to  vanity.  A 
method  of  corporate  management  which  neglected  the 
stockholders  would  be  sacrificing  an  ownership  function 
for  a  selfish  reason  worse  than  vanity.  Now  what  we 
wish  to  show  by  this  comparison  is  this:  Just  as  there 
are  many  styles  of  hats  so  are  there  many  methods  of 
management,  and  just  as  the  best  hat  is  determined  by 
the  fitness  to  serve  the  purpose  of  a  hat,  so  likewise  is 
that  method  of  management  best  which  carries  out  best 
the  functions  of  the  department  which  it  serves.  The 
basic  functions  of  a  hat  are  protection  and  adornment; 
the  prime  functions  of  management  are  control  and 
direction.  Methods  like  styles  must  conform  to  the 
purposes  for  which  they  were  created. 

21.  Economic  units. — We  have  seen  in  the  chapters 
on  development  of  organization  that  the  economic  unit 
starting  with  the  family  at  length  grew  to  include  the 
town  and  finally  embraced  the  nation.  But  as  nations 
develop  and  extend  their  territorial  control,  the  lines 
marking  out  the  boundaries  of  the  present  economic 
units  become  more  and  more  arbitrary  and  only  tend 
to  confuse  instead  of  help  clear  thinking  on  economic 
subjects.  This  economic  fiction  is  being  maintained 
through  the  necessities  of  political  policies  rather  than 
by  the  demands  of  economic  science. 

The  best  units  in  a  science  of  economics  are  not  de- 
termined by  their  size  or  weight,  etc.,  but  by  the  func- 
tion which  is  performed.  Thus  we  find  that  economic 
science  is  divided  into  the  four  fundamental  branches  of 
production,  distribution,  exchange  and  consumption. 


MANAGEMENT    UNITS 

Each  of  these  in  turn  is  divided  into  units  which  de- 
pend for  their  classification  upon  the  function  each  per- 
forms; thus  production  is  considered  from  the  points 
of  view  of  the  three  units  of  capital,  labor  and  land. 
Now  each  of  these  units  is  again  divided  into  other 
units ;  hence,  capital  is  spoken  of  as  fixed  or  circulating 
— depending  upon  the  way  it  performs  its  function — 
and  thus  we  may  go  on  subdividing  and  resubdividing 
as  long  as  a  single  shadow  of  difference  in  performance 
of  function  remains. 

It  was  by  such  rigid  analysis  and  classification  that 
economics  was  reduced  to  a  science  of  business  relations. 
It  is  only  when  these  basic  units  have  been  determined 
that  true  measurement  or  judgments  can  be  made  be- 
tween the  respective  demands  of  labor  and  capital.  We 
must  know  the  function  of  each  before  we  can  determine 
the  rights  of  each  from  the  social  point  of  view. 

22.  Industrial  units. — Out  of  the  broad  field  of  eco- 
nomics come  the  industries.    Here  again  we  search  for 
the  unit  of  classification  based  on  the  function  each  in- 
dustry performs  and  we  find  manufacturing  industries, 
transportation  systems,  banking  or  exchange  houses, 
etc.    Each  is  an  industry  in  that  it  uses  the  elements  of 
land,  labor  and  capital  to  effect  different  objects.  These 
functions  are  sufficiently  described  by  the  names  them- 
selves. 

23.  Distinctions   between   economics,   industry    and 
business. — The  object  of  the  two  preceding  sections  is 
to  show  how  the  search  for  the  unit  of  economic  and 
industrial  classification  has  constituted  the  main  work 
of  the  investigations  in  these  fields.     Business,  in  the 
narrowest  interpretation  of  the  word,  is  made  up  of  ac- 
tivities designed  to  effect  a  specific  purpose  within  the 
field  of  each  industry ;  manufacturing  is  a  broader  term 


222  BUSINESS    MANAGEMENT 

than  plant;  transportation  than  railroading;  exchange 
than  banking.  Therefore,  if  we  are  to  get  a  clear  un- 
derstanding of  a  business  we  must  discover  the  basic 
functions  which  give  character  to  it  or,  as  we  commonly 
say,  determine  the  nature  of  an  enterprise.  This  is  a 
somewhat  difficult  matter  in  the  present  stage  of  con- 
fusion of  thought  concerning  economics,  industry 
and  business.  But  briefly  the  differences  are  these: 
Economics  treats  of  land,  labor  and  capital  in  their 
relation  to  human  wants.  The  social  point  of  view  is 
emphasized.  In  industry  these  three  factors  become 
parts  of  systems  or  processes  by  which  society  is  fur- 
nished with  economic  goods.  In  business  these  elements 
are  used  for  the  purpose  of  producing  revenue  or  divi- 
dends. 

Thus  we  see  that  in  economics  the  point  of  view  is 
social.  In  industry  it  is  partly  social  and  partly  pri- 
vate. In  business  the  social  point  of  view  is  completely 
submerged  and  that  of  private  interest  predominates. 
These  three  points  of  view  are  clearly  seen  in  the  dis- 
tinguishing phrases  of  each  division.  In  economics  they 
are  utility,  value  or  price;  in  industry  they  are  mass 
production,  transportation  in  bulk,  or  syndicating;  in 
business  the  great  words  are  corporate  control,  centrali- 
zation and  money  profits. 

By  keeping  these  three  points  of  view  in  mind  it  is 
possible  to  see  more  clearly  the  great  political  and  busi- 
ness problems  of  the  nation  in  so  far  as  they  have  an 
economic  basis.  It  will  be  noticed  that  the  railroad 
problem,  the  labor  agitation,  the  tariff  question,  etc., 
all  lie  largely  in  the  field  of  industrial  organization  and 
the  chief  point  at  issue  is  to  determine  where  society's 
rights  begin  and  private  privileges  end.  Society,  for 
instance,  is  interested  in  having  the  manufacturers  of 


MANAGEMENT    UNITS 

the  nation  turn  out  a  maximum  of  goods.  The  business 
man  is  not  anxious  primarily  as  to  the  quantity  of  com- 
modities made  but  to  the  amount  of  money  received  for 
them. 

24.  Managerial  or  business  units. — From  the  man- 
agement point  of  view,  the  corporation  is  a  form  of  spe- 
cialization which  puts  the  function  of  ownership  and 
policy  control  into  the  hands  of  a  management  dif- 
ferent from  that  which  directs  the  productive  operations 
of  a  business  unit.  The  business  unit  became  so  large 
and  complex  that  it  had  to  be  subdivided  into  smaller 
units  for  purposes  of  management.  The  corporate  or- 
ganization, therefore,  forms  one  managerial  unit  made 
up  of  stockholders,  directors,  committees  and  officers 
for  purposes  of  directing  the  financial  policy  of  the  busi- 
ness. The  other  division  which  has  been  found  neces- 
sary to  organize  into  a  managerial  unit  is  the  operative 
or  production  end  of  the  business.  This  latter  has  be- 
come further  specialized  into  what  may  be  called  a  staff 
organization  and  a  line  organization. 

These  management  units  and  their  relationship  to  the 
general  management  can  best  be  shown  in  the  form  of 
the  diagram  on  the  following  page. 

An  analysis  of  this  chart  will  disclose  that:  (1)  the 
corporate  unit  by  exercising  its  function  of  ownership 
has  delegated  to  itself  the  right  of  determining  what 
shall  be  done  by  the  general  manager;  (2)  the  staff 
organization  unit  has  become  a  necessary  part  of  every 
large  business  for  the  general  manager  cannot  know 
how  everything  can  be  done  in  the  best  way;  (3)  the 
line  organization  gets  its  orders  directly  from  the  gen- 
eral manager  who  has  been  advised  by  the  corporation 
and  staff  experts.  Although  the  results  of  the  manage- 
ment issue  directly  from  the  line  organization  yet  the 


BUSINESS    MANAGEMENT 

importance  of  the  other  units  is  not  to  be  minimized. 
The  corporate  management  is  controlled  by  a  body  of 
specialists  devoting  their  time  to  the  consideration  of 
financial  and  commercial  policies ;  and  the  staff  technical 
experts  concentrate  their  efforts  upon  the  planning  of 
methods  by  which  the  purposes  of  the  owners  are  car- 


PROC 
CREDITMEN 
ACCOUNTANTS 

SALESMEN 


RE8UL 

FIGURE  2.— CORPORATE,  STAFF  AND  LINE  ORGANIZATION. 

ried  out  through  the  line  organization — the  men  who 
obey  orders  and  achieve  results. 

One  important  thing  which  should  not  be  overlooked 
is  the  central  position  occupied  by  the  general  manager. 
It  has  been  sufficiently  pointed  out  how  closely  spe- 
cialization must  be  followed  by  a  more  comprehensive 
organization  for  the  purpose  of  developing  coopera- 
tion. With  the  specialization  attendant  upon  the  devel- 
opment of  the  corporate  and  operative  units  of  manage- 


MANAGEMENT    UNITS 

ment  there  grew  up  an  overwhelming  demand  for  a 
coordinating  managerial  element  in  the  business  unit. 
The  general  manager  is  being  forced  more  and  more 
to  assume  this  very  heavy  responsibility.  It  is  his  func- 
tion to  correlate  the  policies  of  the  corporate  advisors 
with  the  methods  of  the  technical  experts,  and  then  to 
harmonize  both  of  these  with  his  means  of  production  as 
found  in  the  line  organization. 

The  details  of  management  are  therefore  being 
forced  upon  three  sub-organizations  which  until  very 
recently  have  been  given  little  consideration  from  the 
point  of  view  of  management.  As  the  pressure  in- 
creases, the  necessity  of  further  specialization  in  each 
unit  increases.  Thus  we  see  new  points  forming 
through  which  managerial  methods  and  policies  are  de- 
veloped or  directed. 

Although  the  corporate  organization  and  its  work- 
ings are  fully  treated  in  a  later  volume  on  "Corporation 
Finance,"  nevertheless  a  brief  presentment  of  its  or- 
ganization for  management  purposes  is  outlined  here. 

Stockholders 
Directors 

Executive  Committee 

| 

I  1  I  I  I 

President         Vice-President  General  Manager  Treasurer          Secretary 

FIGURE  3. — ANALYSIS  OF  CORPORATE  ORGANIZATION. 

Corporate  management  begins  with  the  stockholders 
who  own  the  business  and  consequently  have  initiatory 
powers.  It  ends  with  the  executive  officer,  who  like 
the  other  officers  and  committees  derives  his  authority 
from  the  board  of  directors  who  in  turn  look  to  the 
stockholders.  The  president  or  vice-president  presides 
at  all  meetings  of  the  corporate  organization.  The 

11—15 


BUSINESS    MANAGEMENT 

treasurer  is  custodian  of  all  funds  which  he  disburses  on 
presentation  of  the  proper  requisitions.  The  secretary 
takes  care  of  all  corporate  correspondence  and  keeps  the 
corporate  records  and  the  seal.  The  general  manager 
who  is  chosen  by  the  executive  committee  acts  as  the 
point  of  contact  between  the  corporate,  staff  and  line 
organizations.  The  corporate  officers  may  or  may  not 
be  members  of  the  staff  or  line  organizations. 

25.  The  manager's  cabinet. — The  operation  of  a 
plant,  whether  industrial  or  commercial,  calls  for  exer- 
cise of  judgment  upon  many  technical  matters;  accord- 
ingly, it  has  been  found  necessary  to  aid  the  general 
manager  by  forming  an  industrial  cabinet  made  up  of 
experts.  For  many  years  the  manager  who  was  also  a 
skilled  mechanic  was  able  to  conduct  the  operations  of 
production  with  marked  success.  This  was  due  to  the 
part  which  mechanical  equipment  played  in  our  indus- 
trial operations.  But  at  length  other  factors  in  the 
making  of  goods  became  prominent.  Chemistry  be- 
came as  important  as  mechanics.  'Now  it  is  being  real- 
ized that  the  organization  of  the  factory,  commercial 
house,  or  bank,  etc.,  must  be  given  special  attention.  If 
the  size  of  any  firm's  business  is  commensurate  with 
the  average  American  enterprise,  few  men  would  con- 
sider themselves  capable  of  exercising  the  best  judg- 
ment on  all  these  different  specialties.  Accordingly, 
the  management  has  been  strengthened  by  bringing  in 
experts  in  these  various  lines. 

It  may  be  well  to  note  that  the  history  of  industrial 
development  of  the  various  nations  shows  that  the  coun- 
try which  has  led  the  world  at  any  particular  period  has 
been  one  which  developed  first  and  most  efficiently 
some  one  of  these  special  activities  as  aids  to  the  man- 
agement. England  was  first  in  the  field  with  the  use  of 


MANAGEMENT    UNITS 

power  machinery.  She  became  the  "work  shop  of  the 
world."  America  adopted  much  of  the  English  tech- 
nique but  she  leaped  to  the  front  industrially  largely 
because  of  her  corporate  organization  for  controlling 
large  capital  forces  and  concentrating  them  in  the  ex- 
ploitation of  our  natural  resources.  Recently  both  the 
supremacy  of  England  and  of  the  United  States  has 
been  threatened  by  the  industrial  technique  of  the  Ger- 
mans. They  have  brought  industrial  chemistry  to  their 
aid  in  the  international  strife  for  commercial  supremacy. 
The  field  of  specialization  which  is  still  open  for  devel- 
opment is  organization.  Few  factories,  railroads,  or 
banking  institutions  have  placed  among  their  technical 
experts  a  special-  department  for  furnishing  advice  to 
the  general  manager  on  productive  efficiency.  From 
the  widespread  interest  that  is  being  displayed  at  pres- 
ent, however,  it  does  not  seem  likely  that  American 
business  men  will  permit  this  important  function,  man- 
agement, to  go  undeveloped.  The  machine,  chemistry 
and  corporate  organization  all  reduced  costs.  The  ex- 
tension of  the  organization  principle  to  the  field  of  pro- 
duction, transportation,  selling,  etc.,  will  have  a  like  ef- 
fect. Many  men  believe  that  the  addition  of  an  organi- 
zation expert  to  the  cabinet  of  the  general  manager  is 
as  imperative  as  was  the  creation  of  a  cabinet  advisor 
on  agriculture  to  the  president  of  the  United  States 
when  the  farmers'  interests  called  for  special  attention. 
26.  Analysis  of  staff  and  line  organization. — Next 
to  the  corporate  organization  stand  the  staff  and  line 
organizations  as  units  in  management.  The  following 
chart  (Fig.  4)  shows  various  experts  and  their  rela- 
tion to  the  general  manager ;  and  also  how  these  numer- 
ous activities  may  be  further  subdivided  into  smaller 
units  for  purposes  of  more  specialized  administration. 


228 


BUSINESS    MANAGEMENT 


The  various  specialists  belonging  to  the  staff  organi- 
zation may  be  permanently  or  temporarily  retained. 
In  either  case  their  position  holds  such  a  relationship  to 
the  manager  that  they  are  not  generally  considered  as 
employes.  The  feeling  is  gradually  growing  that  these 
men  should  hold  the  same  relationship  to  the  general 
manager  that  a  lawyer  does  to  his  client.  The  lawyer 
looks  into  the  details  of  each  case  and  reports  to  the 

LABOR  LEGAL         ORGANIZATION        FINANCIAL        STATISTICAL      MECHANICAL        CHEMICAL 

SPECIALIST          SPECIALIST        SPECIALIST         'SPECIALIST         SPECIALIST          SPECIALIST          SPECIALIST 


ASSISTANTS 


MANAGER      '      MANAGER 
FINANCIAL.  SALES 

DEP'T  DEP'T 


MANAGER  MANAGER 

PRODUCTION   ACCOUNTINQ 

DEP'T  DEP'T 


FIGURE  4.— STAFF  AND  LINE  ORGANIZATION. 

client.  The  latter  accepts  his  lawyer's  advice  or  rejects 
it  as  he  thinks  best.  By  referring  the  investigation  and 
solution  of  the  details  to  competent  specialists,  the  man- 
ager is  left  free  to  assimilate  their  plans  properly  and 
to  correlate  the  activities  growing  out  of  their  advice. 

When  we  come  to  the  line  experts,  the  men  who  are 
to  carry  out  the  orders  of  the  general  manager,  we  are 
on  familiar  ground.  These  departments  have  been 
closely  connected  with  the  management  for  many  years. 


MANAGEMENT    UNITS  229 

But  as  the  duties  of  the  general  manager  have  grown 
it  has  become  necessary  to  depend  more  and  more  upon 
the  managers  of  departments  to  look  after  the  details. 
Some  confusion  has  arisen  as  a  result  of  this  depend- 
ence^ upon  the  departmental  managers.  The  latter  in 
many  cases  have  absorbed  the  functions  of  the  staff  spe- 
cialists. They  have  become  not  only  the  executors  of 
the  work  but  act  as  special  advisors  in  the  planning  of 
the  work.  If,  however,  the  functions  of  these  depart- 
ments are  kept  clearly  before  the  mind  it  will  be  seen 
that  their  activities  should  be  confined  to  carrying  out 
orders  given  them  by  the  general  manager.  This  divi- 
sion of  function  may  not  always  be  possible  or  neces- 
sary in  small  plants,  but  the  consideration  of  manage- 
ment from  the  point  of  view  of  the  units  for  carrying 
out  the  functions  of  management  require  such  a  divi- 
sion. It  affords  not  only  a  clear  comprehension  of  the 
problems  of  management  but  indicates  a  modern  ten- 
dency which  is  striving  to  relieve  the  general  manager 
of  as  many  details  as  possible  so  that  he  may  be  ready 
to  meet  every  emergency.  The  details  of  the  adminis- 
tration are,  therefore,  left  in  the  hands  of  the  manager 
of  production,  manager  of  sales,  manager  of  finance 
and  manager  of  accounting. 

27.  Financial  department  as  a  unit. — The  manager 
of  the  financial  arrangement  in  connection  with  the  op- 
erative departments  may  have  control  of  the  cash, 
credits  and  collections.  He  may  also  act  as  inspector 
of  all  detailed  financial  offices.  This  does  not  constitute 
the  whole  of  the  financial  operations  of  a  business.  The 
financial  specialist  in  large  concerns  handles  such 
things  as  the  marketing  of  securities.  The  position  of 
the  financial  manager  where  his  functions  are  fully  dif- 


230  BUSINESS    MANAGEMENT 

ferentiated  would  appear  as  in  the  following  chart 
(Fig.  5): 


Manager 

Credit  Man 

I 
Assistants 

Collector 
1 
Assistants 

1 
Cashier 
1 
Assistants 

1 
Inspector 

Assistants 

FIG.  5.— ANALYSIS  OF  FINANCIAL  DEPARTMENT. 

28.  Sales  department  as  a  unit. — The  importance  at- 
taching to  the  marketing  of  goods  has  generally  been 
recognized  but  the  peculiar  conditions  surrounding 
American  markets  have,  until  recently,  made  the  sell- 
ing of  goods  a  comparatively  simple  matter.  The  get- 
ting of  salesmen  with  a  "good  front"  or  a  "personality" 
seemed  to  be  the  chief  problem  in  sales  management. 
To-day  this  is  all  changed.  It  is  stated  on  good  author- 
ity that  30  per  cent  of  the  organization  of  the  mer- 
chandising departments  of  the  country  under  present 
managements  is  unnecessary  and  therefore  an  added 
burden  of  expense.  The  manager  of  a  sales  depart- 
ment must  plan  his  selling  campaigns  with  the  thor- 
oughness of  a  general  of  an  army.  To  the  sales  man- 
ager are  referred  all  plans  for  the  getting  of  new  busi- 
ness, problems  of  selling,  competition,  the  making  of 
sales  contracts,  the  reporting  of  sales  data  and  the  in- 
spection of  sales  agencies. 

Manager 


I  I 

Advertising  Agent  Division  Sales  Agents  Inspector 

Assistants  Salesmen  Assistants 

FIGURE  6. — ANALYSIS  OF  SALES  DEPARTMENT. 

29.  Accounting  department  as  a  unit. — Here  we  find 
a  manager  in  charge  of  all  raw  material,  worked  ma- 
terial and  supplies.  He  likewise  has  charge  of  the  in- 


MANAGEMENT    UNITS 

operative  plant  and  equipment  and  of  all  finished 
product.  He  also  investigates  claims,  and  procures, 
compiles  and  distributes  all  necessary  records  of  conver- 
sion and  operation.  This  department  is  responsible  for 
the  inspection  of  all  records. 

Manager 


Head  Accountant  Auditor 

I I 

Helpers 

Commercial  Bookkeeper  Cost  Bookkeeper 


I.  .  .  I  .  .  I  1  I  I 

deceiving  Shipping     Billing        Storekeeper          Timekeeper          Stockkeeper 

Clerk          Clerk         Clerk 


|  |  Helpers  Helpers  Helpers 

Helpers      Helpers     Helpers 

FIGURE  7. — ANALYSIS  OF  ACCOUNTING  DEPARTMENT. 

30.  Production  department  as  a  unit. — The  classify- 
ing of  the  functions  which  belong  to  the  production  de- 
partment and  the  sub-classification  into  still  smaller 
units  has  constituted  the  chief  activity  of  the  modern 
efficiency  engineer.  According  to  him  a  redistribution 
of  these  functions  is  very  necessary,  but  without  going 
into  the  discussion  at  present  let  us  see  what  natural 
divisions  we  should  find  under  any  system  of  manage- 
ment. The  following  chart  (Fig.  8)  will  show  that 
the  manager  of  production  should  have  charge  of  and 
jurisdiction  over  the  plant  and  equipment,  the  pur- 
chase of  material,  supplies  and  labor.  He  will  also 
supervise  the  inspection  of  purchases  and  output. 


Manager 

Purchasing 
Agent 

Assistants 

Superintendent 

Foremen 

1 

Inspector 
Assistants 

Various  Bosses 

Workers 
FIG.  8.— ANALYSIS  OF  PRODUCTION  DEPARTMENT. 


BUSINESS    MANAGEMENT 

31.  Management  units  the  basis  of  organization 
charts. — It  has  been  said  that  99  per  cent,  of  the  enter- 
prises now  in  existence  have  no  such  thing  as  a  chart 
or  diagram  showing  the  essential  units  of  which  their 
organization  is  composed.  It  has  been  further  stated 
that  50  per  cent,  of  the  managers  never  heard  of  such  a 
thing.  No  doubt  managers  are  not  generally  aware  of 
the  aid  which  the  constructing  of  such  a  chart  would 
be  to  them.  First,  it  throws  into  bold  relief  the  whole 
organization;  second,  it  shows  in  a  form  that  can  be 
visualized,  the  weak  or  undeveloped  parts  of  the  man- 
agement. 

An  organization  that  cannot  be  charted  so  as  to  show 
the  well-defined  relationships  cannot  be  said  to  be  scien- 
tifically managed.  Mr.  H.  F.  J.  Porter  has  said, 

Management  is  like  a  coaching  outfit.  The  coach  must  be 
built  right  before  its  service  is  at  its  best.  All  its  four  wheels 
must  be  of  the  correct  size  and  its  body  of  correct  propor- 
tions. The  horses  must  be  well  matched  and  strong  enough  to 
pull  the  coach.  One  must  not  be  a  dray  horse  and  another  a 
trotter.  The  harness  must  be  properly  suited  to  the  horses 
so  that  the  collars  will  not  chafe  and  irritate  them  and  the 
traces  must  be  of  the  same  length,  so  as  to  pull  evenly  and 
not  permit  one  horse  to  get  his  legs  over  the  other  horse's 
trace  and  interfere  with  him.  If  all  of  these  requirements  are 
not  met,  there  will  be  danger  of  not  running  straight.  Merely 
speaking  to  the  horses  kindly,  or  patting  them  on  the  neck, 
or  giving  them  sugar,  or  plying  the  whip,  is  not  going  to 
reach  the  cause  of  the  trouble.  But  when  this  organization  is 
properly  arranged  so  that  everything  is  in  its  right  place, 
without  overlapping  or  interfering,  it  is  ready  for  the  skilled 
coachman  to  get  up  into  the  box,  take  the  reins  and  drive  the 
coach  over  such  roads  as  he  may  meet.  There  is  some  as- 
surance that  it  will  stay  in  the  middle  of  the  road  without  any 
inherent  tendency  to  go  over  into  the  ditch  on  either  side. 


MANAGEMENT    UNITS  233 

The  man  on  the  box  is  the  manager  and  upon  his  general 
knowledge  of  conditions  and  his  skill  in  handling  the  organi- 
zation will  depend  the  efficiency  of  the  organization.  This 
man  is  an  entirely  different  one,  however,  from  the  one  who 
designed  the  coach  or  the  harness,  although  he  should  have 
very  much  to  say  about  the  selection  of  the  horses. 

Without  going  into  the  details  of  organization  which 
this  analogy  suggests  it  will  be  sufficient  for  present 
purposes  to  note,  that,  generally  speaking,  any  organi- 
zation has  four  basic  departments  which  may  be  com- 
parable to  the  four  horses  drawing  the  coach.  They 
are  the  financial,  the  sales,  the  production  and  the  rec- 
ord departments.  Each  of  these  should  be  as  inde- 
pendent in  its  action  as  any  one  of  the  horses,  but  all 
should  be  so  thoroughly  related  by  their  harness  as  to 
constitute  a  uniform  and  united  force  in  pulling  the 
business.  In  other  words,  these  units  of  management 
should  remain  distinct,  but  their  efforts  should  be  so 
coordinated  as  to  bring  about  a  unified  result. 

32.  Duties  of  the  management  units. — The  duties 
of  the  corporate  management,  as  we  have  seen,  are  to 
furnish  funds  and  determine  the  general  commercial 
policy  of  the  business  enterprise.  The  second  group  of 
duties  organize  themselves  into  a  unit  to  carry  on  the 
productive  functions ;  this  in  turn  divides  itself  into  the 
staff  organization,  the  chief  duty  of  which  is  the  ad- 
vising of  the  general  manager  upon  various  technical 
matters,  and  the  operating  unit,  which  is  generally 
called  the  line  organization. 

The  operating  unit  is  the  one  in  which  we  are  at 
present  peculiarly  interested.  This  unit,  as  we  found, 
was  divided  for  purposes  of  more  efficient  management 
into  four  basic  departments.  The  duty  of  the  first  of 


BUSINESS    MANAGEMENT 

these  departments  is  to  collect  and  disburse  the  money. 
The  duty  of  the  sales  department  is  to  obtain  orders 
for  work  by  which  the  third  or  production  department 
is  kept  going.  The  third  department  then  converts  the 
orders  it  has  received  into  finished  goods.  It  will  be  no- 
ticed at  once  how  dependent  this  department  is  upon  the 
second  and  the  first  departments  for  equipment  and 
then  in  turn  how  dependent  these  departments 
are  upon  the  production  department.  If  mal- 
adjustment is  to  be  avoided,  these  three  depart- 
ments must  be  equally  balanced  and  normally 
independent.  This  then  leads  us  to  the  fourth 
or  record  department,  which  is  intended  to  keep  ac- 
counts of  all  that  happens  in  the  other  departments  and 
thus  maintain  an  operative  balance.  It  provides  records 
for  the  receipt  of  all  raw  material,  holding  it  until  it  is 
needed  by  the  production  department,  keeping  track  of 
what  the  latter  does  with  it,  taking  it  back  as  finished 
products,  handing  it  over  to  the  sales  department  and 
telling  the  financial  department  how  much  it  has  al- 
ready cost,  how  much  more  it  will  cost  before  it  is  sold, 
and  how  much  should  be  added  for  profit  in  order  that 
all  the  departments  may  be  kept  in  good  condition  con- 
tinually. 


CHAPTER  III 

TYPES    OF    MANAGEMENT 

33.  Basis  for  selecting  types. — It  is  always  helpful 
to  a  manager  if  he  is  interested  in  improving  his  or- 
ganization to  know  to  what  classification  his  own  meth- 
ods of  management  belong.  It  is  important,  then,  that 
some  of  the  most  clearly  marked  types  of  management 
be  described. 

The  basis  for  determining  a  type  rests  largely  upon 
the  particular  element  in  an  organization  which  is  rela- 
tively more  important  than  any  of  the  others.  In  look- 
ing at  the  problem  of  management  from  one  point  of 
view,  the  system  employed  in  keeping  track  of  the  men, 
material,  operations,  etc.,  stands  out  prominently.  Ac- 
cordingly some  authorities  have  divided  management 
into  two  types,  i.  e.,  unsystematized  and  systematized. 
Others,  again,  who  wish  to  emphasize  efficiency  of  op- 
eration as  contrasted  with  formal  organization  or  sys- 
tem have  added  a  third  type  to  the  above  two  and  have 
called  it  scientific  or  efficiency  management.  Other 
authorities  would  establish  still  different  types.  The 
efficiency  engineers  have  been  responsible  for  the  clas- 
sification of  management  into  military  and  staff  types. 
This  division  is  based  largely  on  the  methods  by  which 
the  orders  of  the  general  manager  are  carried  out  and 
the  methods  by  which  he  acquires  advice  and  informa- 
tion. A  fourth  classification  is  familiar  to  railroad 
managers.  The  peculiar  nature  of  the  railroad  business 

235 


236  BUSINESS    MANAGEMENT 

has  brought  the  element  of  efficient  control  into  promi- 
nence. Shall  the  managerial  control  be  centralized, 
that  is,  shall  the  working  organization  be  spread  out 
from  a  central  point  so  as  to  cover  the  entire  system, 
or  shall  the  management  be  broken  up  and  the  responsi- 
bilities of  operation  put  upon  the  local  division  superin- 
tendents, each  unit  or  division  being  complete  in  itself? 
These  types  are  known  respectively  as  departmental 
and  divisional. 

Looking  at  the  management  from  the  point  of  view 
of  the  control  of  the  labor  element — and  many  business 
executives  believe  that  in  its  last  analysis  this  is  the 
principal  question  of  the  manager — management  may 
be  divided  into  three  types;  undisciplined,  disciplined 
and  functional. 

34.  Unsystematized  type  of  management. — The 
chief  characteristic  of  the  management  in  an  unsys- 
tematized  plant  is  the  lack  of  a  proper  system  of  cost 
accounts  and  an  inadequate  method  of  keeping  the  ac- 
counting information  in  good  shape.  In  so  far  as  every 
management  must  depend  upon  its  cost  and  financial 
records  in  order  to  meet  market  competition,  the  un- 
systematized  plant  is  at  a  distinct  disadvantage.  In- 
adequate cost  records  are  the  causes  of  many  losses  and 
failures.  It  is  a  frequent  experience  of  certified  pub- 
lic accountants  on  being  called  in  to  examine  books  of 
account  to  find  that  the  firm  is  really  losing  money. 
Not  having  kept  sufficient  cost  records,  the  firm  of 
course  has  been  unconscious  of  its  condition. 

When  a  competitor  discovers  the  fact  that  his  rival  is 
not  keeping  close  account  of  his  costs,  he  is  sometimes 
able  to  purchase  the  goods  more  cheaply  from  the  firm 
which  keeps  inaccurate  cost  accounts  than  to  make  them, 
himself.  It  is  related  that  a  large  department  store, 


TYPES    OF    MANAGEMENT  237 

which  had  for  years  done  its  own  printing,  finally 
ceased  this  branch  of  work,  because  it  discovered  that 
the  printing  trade  in  general  kept  very  inadequate  rec- 
ords of  its  costs.  It  then  adopted  the  method  of  send- 
ing for  estimates  to  a  large  number  of  printers  when- 
ever it  had  a  job  which  it  wished  to  give  out.  All  of 
these  estimates  were  to  be  based  upon  a  printed  sam- 
ple which  the  store  sent  to  the  various  printers.  The 
manager  was  safe  in  choosing  the  lowest  bid  submitted, 
for  without  fail  some  of  the  bids  would  be  below  cost. 

Under  the  unsystematized  type  of  management  the 
accounting  generally  consists  of  a  statement  prepared 
sometime  after  the  annual  or  semi-annual  stock  taking, 
and  shows  the  profit  and  loss,  and  the  assets  and  lia- 
bilities. In  most  cases,  however,  such  a  record  is  chiefly 
of  historical  importance.  If  the  statement  is  bad,  it  is 
too  late  to  remedy  the  troubles  of  the  previous  year 
because  it  shows  merely  the  result  of  that  year.  If, 
as  is  likely  to  happen  where  there  is  little  system,  the 
yearly  statement  is  delayed,  the  record  becomes  too  an- 
cient to  be  of  much  use.  It  frequently  happens  that 
firms  whose  fiscal  year  ends  in  January  do  not  know 
the  result  of  their  year's  business  until  six  months  later, 
and  then  only  in  the  form  of  profit  and  loss  and  assets 
and  liabilities  statements.  Some  of  the  information  is 
eighteen  months  old  and  it  all  comes  too  late  to  stop  any 
of  the  leaks. 

35.  Majority  of  industries  unsystematized. — It  is 
probably  safe  to  say  that  the  great  majority  of  the 
firms  of  this  country  belong  to  the  unsystematized  type 
of  management.  The  prevalence  of  this  type  of  man- 
agement in  America  has  been  due  in  a  great  measure  to 
the  large  margin  which  has  existed  between  the  cost  of 
production  and  the  selling  price.  Having  a  large  mar- 


238  BUSINESS    MANAGEMENT 

gin  of  profit,  little  attention  has  been  paid  to  scientific 
accounting;  but  conditions  in  this  respect  are  chang- 
ing and  the  number  of  systematized  concerns  is  growing 
every  day. 

36.  Systematized  type  of  management. — Under  the 
systematized  type  the  managers  are  methodical  and  sys- 
tematic; each  department  has  been  studied  and  sys- 
tematized until,  so  far  as  records  go,  the  firm  knows 
exactly  where  it  stands  at  all  times. 

The  distinction  between  the  systematized  type  of 
management  and  the  unsystematized  is  seen  in  the  dif- 
ferent emphasis  which  is  put  upon  the  accounting.  In- 
stead of  vague  reports  made  once  or  twice  a  year,  the 
books  of  the  systematic  type  of  management  show  the 
conditions  of  the  business  quarterly  or  monthly,  and  in 
much  detail.  Four  new  features  usually  appear  under 
this  form  of  management.  1.  Reports  showing  last 
year's  cost  with  this  year's  costs.  This  may  be  made 
on  the  basis  of  a  department  or  of  a  certain  product. 
2.  There  will  be  costs,  showing  material  and  labor 
value.  3.  In  addition  to  the  determination  of  these 
direct  costs  there  will  also  appear  a  practical  method 
whereby  overhead  charges  may  be  equitably  dis- 
tributed. 4.  The  results  of  the  business  are  periodically 
put  before  the  manager  in  a  simple  but  comprehensive 
table  or  chart. 

37.  Cost  records  highly  developed. — The  cost  records 
give   systematized  management   a   distinct   advantage 
over  the  unsystematized  firms.     Correct  cost  accounts 
are  relied  upon  to  establish  the  selling  price,  and  to 
point  out  excessive  costs  and  indicate  perhaps  where 
they  may  be  reduced.    Many  managers,  therefore,  be- 
lieve that  when  they  have  a  systematized  plant  they  then 
have  also  an  efficient  plant.    It  is  just  at  this  point  that 


TYPES    OF    MANAGEMENT  239 

the  exponents  of  the  new  scientific  management  take 
issue  with  them.  They  point  out  that  system  helps  only 
one  function  of  management  and  that  even  under  the 
best  systematized  methods  many  things  might  be  dis- 
covered pertaining  to  the  system  itself,  which  would  be 
eliminated  under  the  efficiency  or  scientific  type  of  man- 
agement. These  critics  point  out,  for  example,  that  the 
same  general  system  of  accounting  under  the  system- 
atized type  does  not  permeate  the  whole  plant.  To  il- 
lustrate, the  clerical  work  in  the  different  departments 
may  not  be  included  in  the  cost  accounting.  The  close 
analysis  to  which  the  unsystematized  type  of  manage- 
ment has  been  subjected  recently  has  set  a  new  stand- 
ard of  accomplishment  before  the  management.  To  at- 
tain these  results  new  methods  of  management  based 
upon  close  analysis  are  proposed.  As  these  contrast 
sharply  with  the  other,  a  new  type  has  been  established. 
38.  The  efficiency  type  of  management. — The  man- 
ager of  a  business  of  the  unsystematized  type  depends 
for  information  regarding  costs  and  income  largely 
upon  his  general  impression  supplemented  by  an  ac- 
counting system  that  also  deals  more  or  less  in  general- 
ities. The  systematized  type  furnishes  the  controller 
with  comparatively  accurate  and  detailed  data  as  to 
where,  when  and  how  the  money  was  spent  and  gives 
the  manager  a  good  idea  as  to  how  his  business  is  going 
as  compared  with  other  years.  But  this  is  only  half  of 
the  problem.  The  manager  knows  how,  when  and 
where  his  money  was  spent,  but  he  does  not  know 
whether  or  not  it  was  laid  out  in  the  best  possible  way. 
He  only  knows  that  this  year's  operations  were  better 
or  worse  than  those  of  last  year  or  of  the  year  previ- 
ous. But  why  take  one  year  and  compare  it  with  an- 
other? Does  this  method  disclose  the  causes  of  the  flue- 


840  BUSINESS    MANAGEMENT 

tuations  of  profits?  "No,"  says  the  efficiency  engineer. 
"The  manager  should  know  that  for  every  dime  spent 
a  full  standard  equivalent  is  rendered."  It  is  the  set- 
ting of  standards  that  differentiates  most  distinctively 
the  efficiently  managed  types  from  the  other  types. 
When  standard  times,  standard  materials,  etc.,  have 
been  determined,  it  is  then  and  then  only  that  the  cost 
accounting  system  brings  information  that  can  be  used 
as  a  basis  for  operative  comparisons. 

39.  Standardizing  costs. — When  the  times,  qualities 
and  conditions  of  working  have  been  standardized,  then 
costs  can  be  obtained  which  can  be  considered  as  a 
standard  for  measuring  other  costs.     The  amount  of 
money  spent  upon  a  standardized  operation  becomes 
the  common  measure  for  determining  the  efficiency  of 
these  costs  at  other  times  and  under  other  conditions. 
The  cost  accounting  records  which  show  the  actual  re- 
sults obtained   for  each  item   of  money,  material  or 
service  can  thus  be  compared  with  the  "efficiency  rec- 
ords" which  show  what  should  be  obtained  when  these 
items  are  standardized.    Thus  the  efficiency  of  the  op- 
erations for  the  weekly,  monthly  or  yearly  period  is 
determined.     The  system  thus  becomes  a  real  aid  in 
gaining  bigger  results. 

40.  Costs  come  as  a  by-product. — Costs  come  as  a  by- 
product of  the  methods  for  increasing  efficiency.    This 
may  be  illustrated  by  following  the  course  of  a  ticket  as 
used  in  a  plant  under  the  scientifically  managed  type  of 
organization.    A  ticket  is  made  up  in  the  central  plan- 
ning department  and  when  used  in  connection  with  the 
instruction  card  shows  how  the  work  is  planned  before 
operations  upon  it  begin.    This  ticket  is  next  employed 
to  control  the  order  of  work  by  being  placed  on  a  bul- 
letin or  dispatch  board.    From  this  the  workman  gets 


TYPES    OF    MANAGEMENT 

his  job  together  with  his  instructions  for  carrying  it 
out.  The  ticket  is  stamped  with  the  time  when  he  takes 
it  and  again  stamped  at  the  finishing  of  the  work. 
Having  performed  the  function  of  directing  the  job 
into  the  shop  the  ticket  is  now  used  to  check  off  the 
progress  of  the  work  as  it  passes  through  the  shop. 
This  record  is  carried  on  a  route  sheet.  When  the  job 
is  completed  the  ticket  is  sent  to  the  accounting  de- 
partment to  be  used  in  making  up  the  workman's 
wages.  This  duty  performed,  the  tickets  are  reassorted 
for  the  cost  accountant  on  the  basis  of  specific  opera- 
tions to  enable  the  labor  cost  of  the  job  to  be  deter- 
mined. And  finally,  where  total  or  departmental  costs 
are  wanted,  all  of  these  cost-sheets  on  individual  jobs 
become  the  basis  for  the  determination  of  total  and  ex- 
perimental expenses  and  charges.  The  ticket  has  thus 
been  made  to  do  its  share  in  the  work  of  production,  as 
well  as  to  stand  filed  as  a  record.  The  system  has  been 
made  subservient  to  the  real  purpose  of  the  organiza- 
tion, the  gaining  of  greater  efficiency.  This  change  of 
emphasis  from  system  to  efficiency  which  the  scientific- 
ally managed  business  insists  upon  making  shows  a 
clearly  defined  result.  It  is  claimed  that  more  econom- 
ical ways  of  handling  the  system  itself  are  found  when 
a  systematized  plant  is  subjected  to  efficiency  methods. 
41.  Comparisons  which  afford  a  deadly  parallel.— 
All  accounting  systems  base  their  chief  argument  for 
existence  on  the  comparisons  which  they  afford.  This 
is  very  important.  The  "deadly  parallel"  is  a  method 
not  to  be  ignored  when  a  manager  wishes  a  short  cut 
to  the  comprehensions  of  his  subordinates.  System- 
atized management  recognizes  this  spur  to  increased  ef- 
fort and  efficiency.  For  instance,  a  well  systematized 
firm  employing  uniform  accounting  methods  through- 
n— 16 


BUSINESS    MANAGEMENT 

out  all  its  numerous  branches  employed  an  account- 
ant to  gather  the  monthly  reports  of  each  branch. 
After  a  careful  study  of  the  items  in  detail  he  prepared 
a  comparative  iable  of  results  of  all  the  branches  and 
sent  a  copy  to  each  local  district  agent.  If  agent  A  did 
a  $10,000  business  during  the  month  and  had  $7,000 
on  hand  in  stock  he  was  able  to  compare  in  detail  his 
expense  items  of  labor,  etc.,  with  the  results  of  agent  B 
.who  did  $11,000  worth  of  business  but  had  only  $4,000 
tied  up  in  stock.  Such  comparisons  are  often  enough 
to  induce  agent  A  to  find  means  of  releasing  the  $3,000 
capital  which  is  lying  idle.  But  a  system  of  accounting 
that  is  based  upon  efficiency  records  furnishes  results 
based  on  standard  accomplishments  and  these  serve  the 
manager  in  place  of  a  series  of  "deadly  parallels" 
which  are  mere  comparisons  of  one  period  of  operation 
with  another.  Comparisons  with  predetermined  stand- 
ards stimulate  the  manager  as  well  as  the  subordinates. 
Every  deviation  of  his  costs  from  the  standard  is  clearly 
revealed. 

42.  Stock-taking  under  scientific  methods. — Another 
example  may  show  the  gains  of  the  efficiency  type  of 
management  over  the  others  even  more  clearly.  Annual 
stock-taking  is  an  expensive  operation.  Frequently  it 
involves  shut-downs  as  well  as  the  usual  charges. 
Under  the  type  known  as  efficiently  managed  these  ex- 
penses are  usually  eliminated.  Here,  as  in  the  case  of 
the  ticket  issued  by  the  planning  department  mentioned* 
above,  the  accounting  system  performs  its  part  in  pro- 
duction. The  accounting  actually  controls  the  move- 
ments of  materials  in  and  out  of  the  "stores."  Hence 
its  records  show  the  amount  in  stores  and  if  necessary 
its  value  equivalent  can  be  computed  when  desired.  It 
f urnishejs  a  continuous  inventory  and  daily  balances  can 


TYPES    OF    MANAGEMENT 

be  obtained  where  formerly  weeks  and  months  elapsed 
before  results  were  known.  Firms  taking  stock  on 
January  1  sometimes  do  not  know  how  much  stock 
they  had  at  that  date  until  six  or  seven  months  later. 

Other  examples  might  be  taken  to  show  the  differ- 
ence between  the  two  types  of  management,  but  suf- 
fice it  to  say  that  the  efficiency  system  keeps  as  close  a 
record  of  the  amount  of  materials  and  labor  in  process 
and  the  value  of  the  manufactured  goods  as  it  does  of 
the  stores. 

43.  Staff  and  military  types  of  management. — Just 
what  distinction  is  to  be  emphasized  in  this  classification 
is  not  always  made  clear.  The  military  organizations 
of  to-day  undoubtedly  employ  staff  methods  and  have 
developed  them  to  a  high  degree  of  efficiency.  The  con- 
trast which  most  expounders  of  these  types  have  in  mind 
when  comparing  the  staff  with  the  military  type  seems 
to  be  the  method  of  exercising  control  of  the  business, 
or  the  execution  of  orders  and  commands.  The  mili- 
tary type  suggests  a  domineering  attitude,  an  auto- 
cratic method  and  promotion  by  seniority.  The  staff 
implies  specialized  knowledge,  conferences  and  ad- 
vancement through  proved  fitness.  The  military  type 
is  usually  described  as  a  one-man  power  having  for  its 
ruler  a  despot  who  determines  his  actions  by  the  stand- 
ards of  inherited  information  and  manages  his  business 
through  rule-of-thumb  methods.  The  staff  type  is  pic- 
tured as  being  just  the  reverse  of  this.  Here  the  man- 
ager is  supreme  in  command  but  he  is  advised  at  every 
step  by  experts  whose  information  upon  their  special- 
ties is  the  very  latest  that  can  be  found.  No  snap  judg- 
ments and  no  empiricism  are  in  control. 

Since  there  is  so  much  discussion  on  the  subject  to- 
day it  may  be  well  to  state  this  case  somewhat  more  at 


244  BUSINESS    MANAGEMENT 

length  than  the  importance  of  the  distinction  calls  for. 
The  distinction  has  grown  up  largely  through  the  at- 
tacks of  industrial  engineers  upon  the  present  system 
of  industrial  organization.  They  found  most  of  the  in- 
dustrial plants  of  the  country  poorly  managed  because 
one  man  was  trying  to  do  it  all.  The  manager  finding 
his  powers  limited  in  time  and  space  put  much  responsi- 
bility upon  the  superintendents.  These  in  turn  forced 
the  work  of  carrying  out  orders  upon  the  foremen.  The 
latter  becoming  overburdened  were  compelled  to  rely 
more  and  more  upon  the  judgment  and  initiative  of  the 
workingmen.  This  brought  the  burden  of  the  work  and 
responsibility  upon  the  very  men  who  were  least  able  to 
bear  it.  Non-organization  and  great  waste  were  the 
results.  Since  the  manager  with  his  superintendents, 
foremen,  etc.,  suggested  the  army  organization,  the 
name  military  was  attached  to  it.  But  likewise  this 
military  form  became  associated  with  poor  management 
and  extravagant  waste  in  production.  Then  came  the 
discovery  that  some  concerns  had  increased  their  effi- 
ciency by  hiring  expert  chemists,  draughtsmen,  stu- 
dents of  labor  questions,  etc.  This  at  once  suggested 
the  staff  organization.  The  idea  was  then  developed 
so  as  to  put  most  of  the  important  functions  of  manage- 
ment under  the  guidance  of  a  body  of  specialists.  A 
business,  therefore,  which  had  such  an  addition  to  its 
managerial  equipment  was  spoken  of  as  organized  on 
the  staff  principle. 

44.  Army  as  an  analogy. — So  far  as  military  organi- 
zation is  concerned,  the  army  represents  both  the  staff 
and  line  principles  in  their  highest  form  of  development, 
and  a  brief  review  of  its  parts  and  functions  will  help 
the  business  man  to  see  their  application  to  his  own 
system  of  management. 


TYPES    OF    MANAGEMENT  245 

Military  organization  has  three  main  divisions: 
The  General  or  Military  Staff, 
The  Administrative  Staff, 
The  Fighting  Troops. 

45.  Functions  of  the  general  staff. — The  general  or 
military  staff  is  expected  to  supply  information  and 
brains.     Its  work,  therefore,  divides  into  two  distinct 
branches,    "intelligence"    and    "operation."1    "Intelli- 
gence" embraces  the  collecting  of  information  about 
the  enemy  and  the  seat  of  war,  from  every  possible 
source,  and  arranging  for  its  transmission  to  headquar- 
ters, where  it  is  next  examined  and  collated,  and  finally 
laid  before  the  commander.     This  branch  also  includes 
everything  connected  with  maps  and  topographical  in- 
formation, press  censorship,  and  provision  for  interpret- 
ers and  guides.     "Operation"  includes:     (a)   working 
out  details  of  the  dispositions  and  movements  of  troops, 
their  units  and  numbers,  giving  especial  attention  to 
place  and  time  and  to  the  security  of  the  troops  in  move- 
ment and  at  rest;    (b)    embodying  the  commander's 
plans  in  clear  and  concise  "Operation  Orders";    (c) 
transmitting  these  orders  with  certainty  and  dispatch; 

(d)  watching  and  insuring  their  due  execution  by  the 
administrative  staff. 

46.  Organization    of   military   staff. — The    military 
staff  of  the  commander  of  a  U.  S.  Field  Army  con- 
sists of:    Chief  of  Staff;  Adjutant  General;  Inspector 
General;  Provost  Marshal,  who  has  charge  of  army 
police,  is  chief  of  the  secret  service,  and  oversees  the 
field  post  office;  Chief  Signal  Officer,  who  has  charge 
of  the  military  telegraph  signal  stations  and  balloons  and 
is  general  commander  of  all  signal  troops  of  the  army; 
and  three  aides  with  the  rank  of  lieutenant-colonel.    Of 

1  Herbert  Foster,  "Organization,"  p.  58. 


246  BUSINESS    MANAGEMENT 

course  each  of  these  is  assisted  by  one  or  more  subor- 
dinates and  the  necessary  clerical  force. 

There  is  an  essential  distinction  between  the  action  of  Com- 
manders and  that  of  Staff  Officers,  however  capable.  It  is  true 
that  Staff  Officers  are  not  merely  clerks  or  messengers.  There 
is  often  imposed  on  them  the  duty  of  explaining  to  the  imme- 
diate executive  agents  the  intentions  of  their  chief,  so  as  to 
solve  ambiguities  or  remedy  misunderstandings,  and  to  create 
identical  views  on  the  situation,  especially  if  it  is  rapidly 
changing.  But  it  is  outside  the  scope  of  the  Staff  to  interfere 
with  the  exercise  of  command,  that  is,  on  their  own  authority, 
to  urge,  or  approve,  or  condemn  any  particular  action  on  the 
part  of  subordinate  commanders.  To  do  so  is  to  usurp  the 
function  of  their  chief  and  to  form  a  lateral  interference  with 
the  direct  chain  of  responsibility.  Such  action  commonly  leads 
to  a  struggle  of  conflicting  temperaments,  contrary  to  all  dis- 
cipline and  tends  to  produce  anarchy  in  the  command.1 

47.  Organization  of  administrative  staff. — The  duty 
of  the  administrative  staff  is  to  supply  each  individual 
in  the  force  with  all  he  requires  to  make  it  possible  for 
him  not  only  to  live,  but  to  move  and  fight.  If  the  man 
is  not  regularly  supplied  with  food,  clothing  and  am- 
munition, he  will  not  be  in  condition  to  fight. 

The  administrative  staff  of  an  American  Field 
Army 2  consists  of  a  judge  advocate  at  headquarters 
who  supervises  the  proceedings  of  court  martial,  mili- 
tary commissions,  courts  of  inquiry,  etc.;  a  commissary 
of  musters  charged  with  making  all  musters  into  and 
out  of  military  service,  and  who  exercises  general  super- 
vision over  all  musters  and  payrolls;  a  chief  ordnance 
officer,  charged  with  the  supply  of  ammunition,  arms, 
artillery,  carriages  and  equipment  for  the  troops  of  the 

1  H.  O.  Arnold-Forster,  "The  War  Office,  the  Army  and  the  Empire,"  page  246. 

2  Arthur  L.  Wagner,  "Organization  and  Tactics,"  page  32. 


TYPES    OF    MANAGEMENT  247 

three  armies ;  a  chief  quartermaster,  responsible  for  pro- 
viding the  army  with  forage,  transportation,  clothing, 
camp  and  garrison  equipage,  and  for  the  management 
of  trains;  a  chief  commissary  of  subsistence,  charged 
with  providing  food  for  the  army;  a  chief  surgeon, 
charged  with  the  hospital  and  ambulance  service. 

48.  Succession  by  seniority. — The  careful  adaptation 
of  the  means  to  the  end  has  developed  the  chain  of  com- 
mand in  the  line  organization  and  succession  by  senior- 
ity.   The  art  of  war  is  to  concentrate  the  largest  pos- 
sible force  at  the  right  moment  at  the  decisive  point. 
The  chain  of  command  makes  every  group,  from  a  sin- 
gle soldier  to  a  complete  army,  an  independent  unit  and 
this  without  any  conflict  of  authority.     This  allows  the 
changing  of  the  organization  to  meet  the  varying  con- 
ditions of  the  campaign  without  weakening  the  unity  of 
the  whole  at  any  time.    All  great  authorities  on  army 
organization  emphasize  the  importance  of  having  each 
formation  composed  of  not  less  than  three  subordinate 
units  so  that  no  duplication  of  command  can  result  if 
one  of  the  units  is  dispatched  on  special  duty.     In  or- 
der to  insure  permanency  to  the  organization,  under 
the  trying  conditions  of  war  and  to  prevent  the  car- 
nage which  results  from  confusion  during  a  battle,  it  is 
absolutely  necessary  that  the  next  in  command  succeed 
automatically  to   the  vacancy   caused   by   a   casualty. 
Hence  the  lieutenant  becomes  captain  when  the  cap- 
tains falls. 

49.  War  develops  organization. — For  our  purposes 
it  is  not  necessary  to  outline  the  organization  of  the 
fighting  troops.     The  business  man  can  glean  many  a 
good  suggestion  if  this  outline  of  the  army  organiza- 
tion is  carefully  studied,  for  many  striking  comparisons 
between  it  and  our  industrial  and  business  methods  will 


348  BUSINESS    MANAGEMENT 

be  observed.  The  necessities  of  war  have  developed 
every  organ  in  the  military  body  to  its  highest  degree  of 
effectiveness.  When  business  executives  come  to  see 
that  their  organizations  must  likewise  be  developed  if 
they  are  to  meet  competition,  both  domestic  and  for- 
eign, then  they  too  will  study  their  management  prob- 
lems from  the  point  of  view  of  function,  rather  than 
try  to  solve  them  by  rule  of  thumb. 

50.  Staff  and  line  in  business. — One  firm  which  uses 
the  distinction  between  staff  and  line  officers  is  the 
Sherwin-Williams  Paint  Company  in  the  selling  de- 
partment.   The  main  office  experts,  such  as  "Chief  of 
Motor  Power"  or  "Varnish  Sales  Department  Man- 
ager," confine  their  attention  to  working  out  the  best 
methods  and  the  adoption  of  the  standards  without  hav- 
ing executive  control.     This  rests  in  the  line  or  terri- 
torial managers.    The  company  holds  that  the  technical 
man  is  doing  his  best  work  when  he  is  showing  another 
man  how  to  do  it.    The  specialist  is  needed  in  the  period 
when  construction  and  installation  is  taking  place.    The 
salesmen  in  the  field  should  be  instructed  so  that  they 
may  meet  ordinary  business  contingencies. 

51.  Divisional  and  departmental  types. — The  basis 
for  this  classification  rests  upon  considerations  differ- 
ent from  those  upon  which  the  classifications  already 
mentioned  were  made.    These  terms  are  more  familiar 
to  railroad  men  than  to  managers  in  other  lines  of  busi- 
ness.   The  principle,  however,  on  which  this  division  is 
made  is  just  as  applicable  to  other  forms  of  business 
organization  as  it  is  to  railroading.    But  since  the  de- 
scription of  the  conditions  as  they  exist  in  the  railroad 
business  will  best  bring  out  the  principles  underlying 
these  two  types  of  management,  this  form  of  enter- 
prise has  been  chosen. 


TYPES    OF    MANAGEMENT  249 

One  of  the  great  problems  of  railroad  management 
is  to  overcome  the  difficulties  imposed  upon  it  by  the 
great  distances  which  separate  the  operating  depart- 
ment from  the  source  of  control.  To  look  after  the  de- 
tails of  operation  of  any  railroad  four  or  five  thousand 
miles  long  would  be  beyond  the  capacity  of  any  general 
manager.  Accordingly,  the  operating  territory  has 
been  divided  into  districts  and  its  management  put  in 
the  hands  of  subordinates.  The  division  may  be  long 
or  short,  depending  on  circumstances.  For  example, 
the  Pennsylvania  Railroad  station  in  Philadelphia 
forms  one  division,  but  the  average  length  of  the  divi- 
sions of  this  same  line  east  of  Pittsburgh,  outside  of  the 
big  cities,  is  150  miles.  To  manage  the  details  extend- 
ing over  a  territory  so  large  as  this  considerable  author- 
ity must  be  vested  in  some  local  authority.  The  divi- 
sional superintendent  under  this  type  is,  therefore,  a 
man  of  considerable  importance.  As  Mr.  Ray  Morris 
in  his  excellent  book  on  "Railroad  Administration" 
says: 

In  the  pure  divisional  organization  this  executive  officer, 
the  division  superintendent,  is  made  a  little  king  over  his 
small  domain.  xHe  does  not  solicit  traffic  nor  does  he  collect  or 
disburse  funds,  nor  is  he  a  lawyer  nor  primarily  an  engineer, 
but  everybody  actually  employed  on  the  division  reports  to 
him  on  questions  of  current  operation.  In  the  strict  divisional 
organization  nobody  can  question  the  orders  which  the  division 
superintendent  issues  to  the  gangs  actually  at  work,  or  to 
train  crews,  or  to  station  agents;  in  case  of  personal  injustice 
they  have  some  right  of  appeal  afterward  if  they  want  it,  but 
they  must  first  do  what  they  are  told. 

52.  Characteristics  of  the  departmental  type. — Al- 
though the  divisional  type  of  management  is  predomi- 


250  BUSINESS    MANAGEMENT 

nant  in  America,  nevertheless,  there  are  some  conspicu- 
ous examples  of  the  introduction  of  the  departmental 
type.  The  word  "department"  has  a  somewhat  differ- 
ent significance  in  the  railroad  man's  parlance  from 
what  it  has  in  the  language  of  the  industrial  manager. 
When  the  railroad  manager  speaks  of  departments  he 
has  in  mind  the  functional  operations  which  are  per- 
formed on  any  piece  of  work.  The  industrial  manager, 
on  the  other  hand,  generally  thinks  of  the  department 
as  a  room  in  which  certain  operations  take  place.  The 
department  in  a  store  or  factory  thus  corresponds  to 
the  division  on  the  railroad  and  hence  the  character  of 
the  difficulties  which  arise  under  the  control  of  the  di- 
visional superintendent  are  much  the  same  in  a  general 
way  as  those  which  develop  under  a  general  manager 
in  an  industrial  or  commercial  establishment.  No  mat- 
ter how  capable  a  man  the  superintendent  may  be,  he 
cannot  be  an  expert  in  several  directions.  If  he  is  a 
good  operating  man  he  is  likely  to  be  weak  as  a  civil 
engineer  and  as  a  mechanical  engineer.  Under  the 
departmental  type  of  management,  therefore,  the  good 
operating  superintendent  confines  his  work  to  his  spe- 
cialty, i.  e.,  to  the  operation  of  the  trains,  and  is  sup- 
plied with  experts  in  mechanical  and  civil  engineering. 
Under  the  departmental  type  the  divisional  superin- 
tendent does  not  have  absolute  control  over  all  activ- 
ities. For  example,  if  two  engines  are  to  be  repaired 
and  the  division  superintendent  wishes  it  done  at  once, 
he  must  first  take  "up  the  question  with  the  superintend- 
ent of  motive  power  who  is  an  expert  in  such  mat- 
ters. The  latter  officer,  however,  not  being  connected 
with  the  local  division  staff,  after  having  considered  the 
advisability  of  the  repairs,  would  then  refer  the  matter 
to  the  master  mechanic  who  is  located  in  the  division 


TYPES    OF    MANAGEMENT  251 

superintendent's   territory.      In   brief,    quoting   again 
from  Mr.  Morris: 

The  departmental  point  of  view  is  that  it  is  economy  to 
have  and  to  use  the  best  in  all  branches  of  the  service,  and  that 
if  the  mechanical  forces  do  all  their  work  under  the  supervi- 
sion of  a  $10,000  superintendent  of  motive  power,  the  results 
will  be  better  than  if  they  do  half  of  it  under  the  supervision 
of  the  $2,500  superintendent. 

The  following  chart  (Fig.  9)  will  illustrate  the  line 
of  authority  as  it  is  displayed  in  the  two  types  of  man- 
agement. 

53.  Comparison  of  the  two  organizations. — The  fol- 
lowing excerpt  from  an  address  by  Mr.  Arthur  Hale 
before  the  New  York  University  students  brings  out 
the  workings  of  the  departmental  system  when  applied 
to  large  railroads: 

No  matter  what  the  type  of  business  a  man  may  be  engaged 
in  he  can  readily  see  the  application  if  he  simply  substitutes 
the  names  of  the  departments  in  his  own  particular  industry 
and  the  officers  who  have  them  in  charge  for  those  referred  to 
under  railroad  management.  Every  approach  to  the  depart- 
mental system  on  a  one-division  railroad  weakens  the  superin- 
tendent without  strengthening  the  president,  -and  for  the 
larger  system  every  approach  to  the  departmental  system 
weakens  the  superintendent  without  strengthening  the  general 
manager. 

Strength  and  weakness  are  best  shown  in  emergencies,  and 
an  actual  emergency  will  best  show  how  division  and  depart- 
ment organization  work.  On  a  certain  occasion  it  became 
necessary  to  rebuild  certain  trestles  near  each  other  on  paral- 
lel railroads  organized  differently.  The  superintendent  of  the 
railroad  with  the  division  organization  got  his  carpenters  to- 
gether at  once,  bridge  carpenters,  and  shop  carpenters  and 


BUSINESS    MANAGEMENT 


all,  and  transported  them  by  special  train  to  the  scene  of  the 
accident,  with  all  the  heavy  timber  he  could  get  together,  and 


U«  J 


I 


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— I    s    £ 


S. 


ri     3 


simply  reported  what  he  had  done.  The  superintendent  of  the 
road  with  the  departmental  organization  could  do  nothing  but 
report  the  facts  to  his  general  manager.  The  superintendent 


TYPES    OF    MANAGEMENT  253 

had  no  control  of  the  bridge  carpenters  or  the  shop  carpenters 
in  his  vicinity.  It  was  Sunday,  and,  to  tell  the  truth,  he 
did  not  know  where  they  were  to  be  found.  The  general  man- 
ager was  not  in  much  better  plight,  but  he  managed  to  organ- 
ize a  force  composed  of  his  general  superintendent,  his  super- 
intendent of  floating  equipment,  and  his  engineer  of  bridges, 
and  he  made  very  good  time  with  his  trestle.  It  would  have 
been  better  on  a  week  day,  but  the  organization  went  to  pieces 
on  Sunday. 

Or,  take  a  more  usual  case,  the  investigation  of  an  accident. 
A  car  goes  off  the  track ;  is  the  trouble  with  the  car,  the  tracks 
or  the  speed?  We  must  know,  for  it  must  not  occur  again. 
With  the  division  organization  such  a  question  goes  to  the 
superintendent.  He  represents  the  three  departments;  he 
knows  the  territory  and  will  decide  the  case  in  short  order. 
Indeed,  the  mere  fact  that  he  will  so  decide  frequently  prevents 
his  department  from  urging  doubtful  claims.  With  the  de- 
partment organization  there  is  no  impartial  authority  on  the 
ground,  and  many  investigations  are  closed  without  decision. 
Of  course  they  can  be  carried  to  the  general  manager,  but  he 
cannot  decide  all  such  questions,  more  especially  as  his  chiefs 
of  departments  are  quite  likely  to  stand  up  for  their  own  men. 

From  the  side  of  economy  and  efficiency  the  division  organi- 
zation also  has  advantages.  When  a  superintendent  can  be 
held  responsible  for  everything  on  his  division  he  will  see  that 
he  has  enough  men,  and  no  more,  to  keep  his  engines  and 
tracks  in  condition.  Under  the  department  system  all  the 
work  will  be  authorized  and  done  on  orders  from  headquarters 
without  so  intimate  a  knowledge  of  local  needs. 

Of  course,  the  division  system  has  difficulties.  The  rivalry 
is  here  among  divisions  instead  of  among  departments.  This 
means  that  a  firm  hand  is  needed  at  headquarters  to  keep  the 
rivalry  healthy.  The  objection  most  often  urged,  however,  is 
that  certain  officers  on  the  staff  of  the  superintendent  will 
have  a  divided  responsibility.  The  division  engineer,  for  in- 
stance, must  be  responsible  to  the  superintendent  in  certain 
matters  and  to  the  chief  engineer  in  others.  The  master 


254.  BUSINESS    MANAGEMENT 

mechanic  must  also  serve  two  masters,  the  division  superin- 
tendent and  the  superintendent  of  motive  power.  And  the 
subject  is  dismissed  with  the  dictum,  "a  divided  responsibility 
will  never  do." 

The  gentlemen  who  take  this  ground  forget  that  our  whole 
railroad  system  is  based  on  divided  responsibility.  The  agent 
reports  to  four  departments,  so  may  the  conductor,  while  the 
enginemen  and  the  firemen  and  car  inspectors  report  to  two. 
If  the  firemen  can  safely  report  to  both  the  trainmaster  and 
the  road  foreman,  cannot  two  of  his  superiors  be  trusted  to 
do  the  same  thing? 

The  only  reason  that  it  is  safe  for  the  firemen  and  the 
enginemen  to  report  to  two  superiors  is  that  this  responsibility 
is  carefully  defined  in  the  books  of  rules,  and  that  the  men 
have  been  carefully  disciplined  in  the  matter.  There  is  no 
greater  difficulty  in  defining  the  two  responsibilities  of  division 
engineer  and  the  master  mechanic. 

It  is  obvious  that  these  officers  should  report  to  the  super- 
intendent in  matters  of  policy,  discipline  and  expense.  To  the 
chief  engineer  and  superintendent  of  motive  power  they  should 
report  on  all  technical  matters.  But  perhaps  the  best  way  to 
phrase  this  is  to  say  that  they  should  report  to  the  division 
superintendent  everything  excepting  matters  relating  to  stan- 
dard designs  and  methods.  It  has  always  been  recognized  that 
standard  designs  come  under  the  members  of  the  general  man- 
ager's staff.  Where  there  has  been  difficulty,  it  can  be  traced 
to  misunderstanding  as  to  methods  of  doing  work,  and  the 
recognition  of  standard  methods  should  give  the  staff  officers 
sufficient  power  as  well  as  plenty  to  do,  for  these  independent 
superintendents  are  sometimes  hard  to  handle.  The  depart- 
ment type  will  make  you  splendid  trainmasters  and  most  ac- 
complished engineers  in  the  civil  and  mechanical  branches. 
The  divisional  type  will  give  you  all  around  railroad  men. 

54.  Advantages  and  disadvantages  of  the  two  types. 
— In  order  that  the  advantages  and  disadvantages  of 


TYPES    OF    MANAGEMENT 


255 


these  two  types  may  be  closely  compared  the  following 
outline  is  given: 


DEPARTMENTAL 

ADVANTAGES 

1.  Develops  specialists. 

2.  Expert  in  charge  of  each 
department. 

3.  Avoids  duplication,   and 
so  tends  to  increase  the  ma- 
chinery floor  space,  and  power 
necessary  for  a  given  volume 
of  work. 

4.  Uniformity  of  method. 

DISADVANTAGES 

1.  Danger  that  the  heads 
will  work  for  the  departmental 
showing  even  at  the  expense  of 
some  other  departments.  If 
by  spending  $3  or  $4  a  de- 
partment head  can  save  $10  in 
some  other  department,  it  is 
to  the  company's  interest  to 
do  so  even  though  his  depart- 
ment expenses  are  thereby  in- 
creased. 


Which  system  is  the  better  is  for  each  business  to  de- 
cide for  itself.  Adaptability  to  changed  conditions  is 
largely  a  matter  of  temperament.  On  important  ques- 
tions there  are  usually  two  schools  of  opinions.  The 
general  sentiment  seems  to  be  that  the  departmental  is 
preferable  in  small  companies.  Here  control  is  com- 
paratively simple  and  the  departmental  arrangement 
makes  the  most  efficient  use  of  the  available  talent. 


DIVISIONAL 

ADVANTAGES 

1.  Develops  all-round  men. 

2.  Centralizes  control,  hence 
promotes  unity  of  purpose. 

3.  Promotes  closer  coopera- 
tion,   especially    in    times    of 
emergency,     between     depart- 
ments, since  all  are  under  one 
man's  charge. 

4.  Hence    quicker    produc- 
tion, and 

5.  Decreased  clerical  labor. 

6.  Increases    individual    in- 
itiative   and    competition    be- 
tween similar  units. 

DISADVANTAGES 

1.  Directing  head  is  not  a 
technical  expert  in  each  field. 


256  BUSINESS    MANAGEMENT 

Similarly  where  the  technical  feature  is  more  important 
than  the  executive  the  departmental  arrangement  is 
preferable  because  it  places  a  technical  expert  in  charge 
of  each  department.  Where,  however,  the  company  is 
large  in  numbers  or  covers  a  big  territory  or  deals  with 
isolated  units,  such  as  battleships,  separate  contractors 
or  plants,  the  tendency  is  toward  divisional  organiza- 
tion. Within  the  last  few  years  the  railroads  have  ex- 
tended its  application,  the  navy  has  consolidated  the 
engineering  and  line  officers  on  its  battleships,  and  the 
Westinghouse  Electric  and  Manufacturing  Company, 
after  a  careful  study  of  existing  methods  and  extensive 
experimentation,  has  changed  from  the  departmental  to 
the  divisional  and  is  more  than  pleased  with  results. 
While  under  the  divisional  system  each  department  may 
not  be  administered  so  efficiently  as  by  a  specialist, 
this  loss  is  made  up  through  the  saving  resulting  from 
the  closer  cooperation  between  the  departments. 

55.  Compromises  in  practice. — As  an  actual  fact, 
most  organizations  cannot  be  classed  as  being  either 
clearly  departmental  or  divisional  but  are  a  mixture  of 
the  two.  They  attempt  in  various  ways  to  secure  the 
increased  control  of  the  unit  system  without  sacrificing 
the  expert  council  of  the  functional.  This  is  sometimes 
brought  about  by  dividing  authority  as  in  the  Penn- 
sylvania Railroad.  The  master  mechanic  is  accountable 
to  both  superintendent  of  motive  power  and  division 
superintendent.  Thompson- Starret's  timekeepers  are 
accountable  to  the  job  superintendent  and  to  the  head 
timekeeper.  When  the  scope  of  the  several  authorities 
is  clearly  defined  in  the  rule  book  and  the  administra- 
tion is  carried  on  with  courtesy  and  good  sense,  the 
demands  of  ordinary  business  are  met  and  this  is  prob- 
ably the  best  solution. 


CHAPTER  IV 

TYPES    OF    MANAGEMENT    (continued) 

56.  Undisciplined    and    disciplined    management. — 
Reference  has  been  made  already  to  the  various  points 
of  view  from  which  the  problems  of  management  may  be 
observed.     From  an  accountant's  or  a  systematizer's 
point  of  view,  it  is  either  unsystematized  or  systema- 
tized; from  the  executive's  point  of  view,  his  organiza- 
tion is  controlled  either  by  staff  or  military  methods; 
if  he  happens  to  be  a  railroad  manager,  he  may  speak 
of  his  control  being  exercised  either  under  the  divisional 
or  departmental  type  of  management. 

We  may  make  a  further  classification  into  two 
classes;  namely,  undisciplined  and  disciplined  manage- 
ment. The  point  of  view  here  taken  is  that  the  labor 
condition  in  a  plant  depends  upon  the  nature  of  its 
management.  These  conditions  will  enable  the  laborer 
to  use  his  time  effectively  or  otherwise. 

57.  Undisciplined  type. — A  close  study  of  the  aver- 
age workingman's  day  will  show  that  a  surprisingly 
small  proportion  of  the  time  is  given  to  effective  work. 
The  small  proportion  of  effective  time  is  the  chief  char- 
acteristic of  the  undisciplined  type  of  management.    It 
could  not  be  otherwise  in  a  plant  where  orders  are 
transmitted  verbally  from  one  source  of  authority  to 
another.     Many  of  these  firms  permit  their  salesmen 
to  give  their  orders  directly  to  the  superintendent;  the 
latter,  without  further  instructions,  transmits  his  order 
to  the  foreman,  adding,  perhaps,  a  few  details  which 

n-i7  257 


258  BUSINESS    MANAGEMENT 

the  latter  may  need  for  his  enlightenment.  It  is  as- 
sumed that  the  superintendent  knows  his  business  and 
that  the  foremen  know  theirs  and  that  finally  when  the 
laborer  receives  his  orders,  he  will  know  what  is  wanted 
or  will  ask  questions  when  he  is  not  sure.  A  working 
force  trying  to  get  started  upon  a  job  on  such  inexact 
information  must  necessarily  lose  much  time. 

But  the  loss  does  not  end  here.  When  the  superin- 
tendent, the  foremen  and  the  workmen  have  all  studied 
out  the  best  way  to  do  the  work,  the  preparation  for  and 
the  execution  of  the  work  must  still  be  done  in  the  same 
haphazard  manner.  The  number  of  men  and  the 
amount  of  work  each  foreman  is  expected  to  control  is 
only  limited  by  the  amount  of  details  which  he  can 
carry  in  his  head.  The  more  this  detail  increases  the 
more  must  he  depend  upon  the  men  working  under  him. 
When  questions  arise  in  the  progress  of  the  work,  which 
happens  continually  where  there  are  no  written  orders 
or  instructions  for  the  workingman,  all  progress  on  the 
work  stops  until  the  foreman  can  go  to  the  superintend- 
ent, and  the  latter  to  the  office  to  find  out  what  is  to 
be  done.  Furthermore,  in  such  a  business,  there  are  no 
provisions  whereby  the  workingman  is  supplied  with 
tools  and  appliances.  He  must  hunt  out  and  select  his 
own  equipment.  When  the  pay  roll  is  examined,  the 
same  lack  of  control  is  found  here.  If  the  piece-work 
method  of  payment  is  used,  it  will  generally  be  found 
to  be  unequal.  Rates,  not  being  determined  by  any 
exact  method,  are  often  subject  to  change  and  with 
every  change  some  discipline  is  lost. 

This  lack  of  control  on  the  part  of  the  management 
by  not  planning  the  work  at  the  start  and  by  not  issu- 
ing direct  instructions  results  in  little  or  no  cooperation 
among  departments  and  hence  a  congestion  of  unfin- 


TYPES    OF    MANAGEMENT  359 

ished  work  at  many  points.  Thousands  of  dollars  of 
capital  are  thus  tied  up  in  many  plants  and  valuable 
floor  space  which  might  be  used  to  better  advantage  is 
taken  up  with  unfinished  goods,  the  interest  charges  on 
which  are  every  moment  eating  into  the  profits. 

It  would  be  impossible  to  name  all  the  evidences  of 
waste  which  show  themselves  under  the  undisciplined 
type  of  management,  but  three  stand  out  prominently. 
As  might  be  inferred,  it  is  difficult  to  secure  a  high 
quality  of  work  and  to  maintain  a  uniform  quality. 
Furthermore,  the  numerous  mistakes  which  are  likely 
to  occur  in  rush  times  are  not  always  called  to  the  at- 
tention of  the  managers.  Finally,  if  the  cost  records  of 
the  concern  were  to  be  examined,  it  would  be  found 
that  the  costs  fluctuate  much  more  than  they  should. 

58.  Low  labor  efficiency. — During  dull  periods  the 
ineffectiveness  of  the  undisciplined  type  shows  itself 
most  clearly.  The  output  of  the  plant  on  the  whole  is 
low  and  uneven;  even  among  the  departments  there  is 
an  easily  traced  variation.  All  this  is  due  to  the  lack  of 
efficient  control.  It  is  the  opinion  of  the  foreman  and 
not  an  exact  standard  which  determines  the  output  of 
a  machine  or  of  a  man.  And  although  some  depart- 
ments may  be  working  efficiently,  the  accomplishments 
of  others  are  very  low.  Therefore,  while  the  majority 
of  the  men  may  be  doing  what  they  consider  a  fair 
day's  work,  the  ratio  of  the  productive  time  to  the  time 
which  is  lost  is  very  low. 

One  example  will  illustrate  the  loss  of  efficiency  due 
to  a  lack  of  control  under  the  undisciplined  type  of  man- 
agement. In  this  case,  the  internal  control  was  inter- 
fered with  by  outside  factors.  A  workingman  in  a  cer- 
tain trade  was  able  to  make  $3  a  day,  but  he  was  limited 
to  $2  per  day  by  "shop  opinion."  It  cost  the  firm  much 


260  BUSINESS    MANAGEMENT 

more  by  this  method  because  the  floor  space  occupied 
could  have  turned  out  50  per  cent,  more  work  if  the 
manager  could  have  selected  his  man  and  encouraged 
him  to  work  up  to  a  higher  standard.  In  addition, 
since  the  man's  case  was  typical,  the  overhead  charges 
must  be  considered,  for  it  was  necessary  to  spread  at 
least  50  per  cent,  more  of  the  cost  over  each  unit  of  the 
product  than  was  necessary. 

Perhaps  the  greatest  loss  is  in  the  effect  that  such  a 
method  has  upon  the  workingman  himself.  If  he  is 
well  adapted  to  the  work,  he  will  be  much  happier  where 
he  is  permitted  to  do  his  best. 

59.  Disciplined  type  of  management. — Under  this 
type  of  management  the  mistakes  of  the  undisciplined 
type  are  avoided.     The  managers  are  systematic  and 
methodical.    The  slip-shod  methods  of  the  first  kind  of 
management  are  displaced  by  a  complete  set  of  order 
cards  directing  the  laborer  by  recording  and  transmit- 
ting the  orders.    Even  though  he  is  not  told  how  to  do 
it,  he  is  at  least  instructed  what  to  do.    Each  worker  is 
supplied  with  a  time  card  upon  which  he  is  to  record 
the  time  for  each  job  and  although  this  does  not  show 
the  time  taken  getting  ready  to  begin  work,  etc.,  never- 
theless, it  does  record  accurately  the  direct  labor  cost. 

60.  Evidences  of  discipline. — Most  disciplined  types 
try  to  install  uniform  systems  of  wage  payment.    As  a 
rule,  piece  work  is  considered  the  most  economical  way 
of  doing  the  work.    In  short,  instances  of  the  disciplined 
management  show  that  such  systems  are  remarkably 
free  from  errors  and  bad  work  and  often  reach  the 
maximum  output  per  man  and  per  machine  under  the 
conditions.    Yet  the  standards  for  the  output  are  sel- 
dom any  better  than  under  the  undisciplined  type ;  for 
here,  as  in  the  former,  the  opinions  of  the  bosses  and 


TYPES    OF    MANAGEMENT  261 

foremen  serve  as  the  standards  of  accomplishment. 
Standards  obtained  by  trained  men  and  exact  methods 
are  lacking,  and  little  effort  is  made  to  study  the  work- 
ers to  find  out  whether  or  not  they  are  fitted  for  their 
particular  tasks,  or  doing  their  work  in  the  best  possible 
way. 

Mr.  Henry  P.  Kendall,  manager  of  the  Plimpton 
Press,  gives  an  interesting  illustration  of  the  necessity 
for  supplementing  disciplined  management  by  closer 
study. 

In  book-binding  there  are  different  kinds  of  work.  Laying 
gold  leaf  calls  for  a  girl  with  small  fingers  and  a  delicate  touch. 
Strength  is  not  required.  Another  operation  calls  for  a  large, 
strong  girl,  who  can  easily  handle  bundles  of  work  weighing 
seven  or  eight  pounds.  In  proof-reading  the  time  reaction  of 
seeing  a  word  and  grasping  its  meaning  is  a  very  important 
feature.  Other  girls  doing  inspection  work  must  have  the  abil- 
ity to  concentrate  their  minds  on  one  particular  operation. 
The  different  kinds  of  work  demand  girls  selected  with  special 
reference  to  their  aptitude  for  their  particular  work.  In  every 
factory  will  be  found  workers  in  one  department  who  cannot 
successfully  do  their  work,  but  who  could  successfully  do 
work  of  another  kind. 

When  I  think  over  the  psychology  of  industrial  workers,  I 
am  reminded  of  my  own  experience  in  college.  In  the  psycho- 
logical laboratory  tests  were  made  on  all  my  class.  I  had 
the  quickest  time  reaction  from  seeing  a  flash  of  light  to  mus- 
cular action  in  pressing  a  button ;  I  had  the  slowest  time  re- 
action in  the  class  in  seeing  a  word,  comprehending  its  mean- 
ing, and  then  pressing  a  button  which  registered  the  time  it 
had  taken  me  to  see  and  comprehend  its  meaning.  This  ex- 
periment showed  the  reason  why  I  was  the  slowest  reader  in 
my  class  and  why  on  a  given  test  in  reading,  in  literature  or 
any  other  subject,  I  took  longer  than  anyone  else.  While  not 
a  sprinter,  my  record  for  the  fifteen-yard  dash  has  never 


BUSINESS    MANAGEMENT 

been  beaten — not  because  I  was  a  fast  runner,  but  simply 
because  the  time  reaction  to  muscular  effort  enabled  me  to  get 
off  more  quickly  after  the  pistol  shot  than  anyone  else.  I 
never  could  have  made  a  proof-reader  or  earned  my  salt  as  a 
book-keeper,  but  I  think  I  should  have  made  a  tolerably  good 
motorman. 

There  is  much  system  and  much  method  in  the  dis- 
ciplined type  of  management  but  the  scientific  selection 
of  the  worker  is  almost  unknown.  Primarily  for  this 
reason  the  highest  efficiency  is  almost  impossible  of  at- 
tainment. 

61.  Traditional,  transitory  and  functional  types. — 
No  attempt  has  been  made  to  explain  the  causes  of  the 
differences  which  exist  among  the  various  groups  of 
management.  These  groups  or  types  have  grown  up 
because  business  men  have  looked  upon  the  business 
field  from  different  points  of  view.  When  analyzed  it 
will  be  found  that  the  military  type  of  the  second  clas- 
sification corresponds  roughly  to  the  undisciplined  type 
of  the  last  classification.  Similarly  it  will  be  found  that 
a  concern  which  uses  the  systematized  type  of  manage- 
ment is  very  likely  to  fall  under  the  disciplined  plan  of 
labor  control.  Before  the  recent  discussions  on  the  sub- 
ject of  business  efficiency  became  so  general,  there  were 
three  classifications  covering  the  various  types  of  man- 
agement and  they  seem  to  cover  the  whole  field  in  a 
much  broader  way  than  the  more  recent  classifications. 
These  types  were  the  traditional  type,  the  transitory 
type  and  the  functional  type  of  management. 

It  will  not  be  necessary  to  discuss  the  first  two  of 
these  types  because  they  cover  in  a  general  way  the 
types  already  described.  The  old  boss,  military  or 
strenuous  types  of  management  would  fall  under  the 
traditional  plan.  When  this  plan  has  been  improved 


TYPES    OF    MANAGEMENT  263 

upon,  by  the  adoption  of  more  systematized  dis- 
ciplined methods,  the  type  is  spoken  of  as  transitory. 
However,  there  is  a  third  type  which  lies  in  direct  con- 
trast to  all  of  the  previous  types.  In  describing  it, 
therefore,  it  will  be  necessary  to  put  it  in  contrast  with 
examples  of  management  under  each  of  the  foregoing 
types. 

TRADITIONAL  TYPE      TRANSITORY  TYPE       FUNCTIONAL  TYPE 

1.  Does  not  realize  that  pro-       1.     An    equipment    properly       1.     Physical    appearance    re- 
per    space    for    storage    is    im-  arranged  for  storage.  sembles  Transitory  Type, 
portant. 

2.  May    be    general    store-  2  (a).     Various  departments  of-       2  (a).     Central  control  of  de- 
room,  but  all  the  stores  seldom  ten  have  their  own  stores  but  partment  stores. 

found  there.  not  under  central  control.  (6).     Proper  system  laid  out 

(6).     Everything  arranged  in  in  orderly  way. 
neat  and  orderly  manner. 

3.  No  system  in  piling  stores.       3.     Everything  is  kept  in  its       3.     Provision  for  holding  and 
Generally  put  in  place  most  con-  place.  piling  stores. 

venient  at  the  time. 

4.  No  person  to  assume  and       4  (a).     Storekeeper  issues  all       4  (a).    Balance-pf -stores  clerk 
carry  out  responsibilities  for  the  stock,  but  no  central  office  con-  controls  all  materials  from  cen- 
order  in  which  stores  are  kept.   trol.  tral  office. 

(6).     Stores  issued  on  requisi-       (6).     Materials    delivered    on 
tion  only.  requisition  only  when  signed  by 

(c).     Storekeeper    has    assist-  stores  clerk  in  central  office, 
ants  for  moving  stores  in  and       (c).     Storekeeper    has    assist- 
out,  ants.     All   act  on  orders  from 
central  office. 

5.  Proper   records   of   stores       5  (a).     Perpetual    or  "book"       5  (a).     Ledger  sheets  in  cen- 
generally  missing.  inventory  kept  in  office  but  sel-  tral  planning  office  have  maxi- 

dom  predetermined  maximum  mum  and  minimum  require- 
and  minimum  requirements.  ments  for  each  kind  of  material. 
(6).  Office  Book  inventory  (6).  Balance-of-stpres  sheets 
is  balanced  with  stores  and  (ledger  sheets)  kept  in  the  cen- 
once  a  year  the  balance  checked  tral  office.  Upon  these  the  loca- 
against  an  actual  physical  in-  tion  of  material  is  shown, 
ventory  of  stores.  (c).  All  bookkeeping  for 

stores  done  in  central  office. 

6.     Some  kind  of  division  and       6.     Symbols  used  to  designate 
classification   of   stores    will   be  different  kinds  of  stores, 
found. 

7    (a).     Sometimes   a   central       7  (a).     All  work  on  materials 
planning  station  is  found.  planned  ahead  in  planning  de- 

(b).     In  the  station  the  opera-  partment. 

tions  for  each  process  are  written  (6).  All  planning  done  before 
out  before  work  is  started.  operating  department  needs 

(c).     Where  planning  station   them. 

is  not  in  operation,  materials  are  (c).  Materials  running  low 
often  wanted  before  it  is  dis-  noticed  at  once  and  a  supply 
covered  that  some  part  or  ma-  obtained  before  operations  be- 
terial  is  missing.  gin. 

8.     Supply    stores,    such    as       8.     System  covers  all  supply 
belting,     electrical     appliances,   stores, 
etc.,  are  not  usually  put  under 
the  general  system  of  stores. 

9.  Special  men,  called  "  move 
men,"  take  and  remove  materials 
to  and  from  machines,  thus  re- 
lieving   workman    and    keeping 
him  from  looking  for  or  waiting 
for  his  materials. 

10.  Fire  Protection. 


264  BUSINESS    MANAGEMENT 

62.  Functional  type  of  management. — This  type  is 
variously  spoken  of  as  scientific,  efficient  or  functional 
management.    Let  us  now  examine  somewhat  in  detail, 
but  in  the  form  of  an  outline,  the  various  contrasts 
which  appear  among  the  traditional,   transitory  and 
functional  types  when  applied  to  the  management  of 
the  stores   department.     The   differences  which  arise 
here  will  be  typical  of  the  differences  which  occur  in 
other  branches  of  the  business. 

63.  Work   planned   ahead. — Perhaps    the   broadest 
contrast  between  the  functional  type  and  other  types  is 
in  planning  all  the  work  for  each  workman  ahead  of 
time.     The  principle  by  which  it  gains  control  of  the 
operating    elements    is    by    planning    completely    the 
proper  execution  of  the  work  before  a  single  move  is 
made.    A  route  sheet  showing  the  names  and  order  of 
all  the  operations  which  are  to  be  performed  is  made  out 
and  instruction  cards  are  clearly  written  for  each  opera- 
tion period.     Requisitions   on  the   stores   department 
showing  the  kind  and  quality  of  the  materials  and  where 
they  should  be  moved,  and  the  list  of  proper  tools  for 
doing  the  work  in  the  best  way,  are  prepared  for  each 
operation;  the  very  best  methods  for  performing  each 
operation  are  determined  in  advance  and  embodied  in 
the  instructions. 

64.  Planning  gives  control. — Mr.  Henry  P.   Ken- 
dall,  before  the  Dartmouth   conference  on  scientific 
management,  said: 

By  this  means,  the  order  and  assignment  of  all  work,  or 
routing  as  it  is  called,  should  be  conducted  by  the  central 
planning  or  routing  department.  This  brings  the  control  of 
all  operations  in  the  plant,  the  progress  and  order  of  the 
work,  back  to  the  central  point.  Information  which  even  in 


TYPES    OF    MANAGEMENT  265 

the  systematized  plant  is  supposed  to  be  furnished  by  the 
progress  of  the  workmen  or  the  gang  boss  or  foreman  is 
brought  back  to  the  planning  room  and  becomes  a  part  of  the 
instruction  card. 

In  many  unsystematized  plants  no  attempt  is  made  to  change 
the  methods  by  which  the  workman  performs  his  operations. 
Plenty  of  time  and  money  may  be  spent  on  special  machinery, 
but  when  that  is  installed  very  little  time  is  spent  in  a  close 
analytical  study  of  the  time  element  and  motions  involved  in 
the  operating,  in  order  to  make  it  possible  for  the  workman 
to  work  in  the  easiest  and  best  way  and  to  furnish  a  fair  basis 
of  remuneration. 

When  the  analytical  study  has  been  made,  the  probable 
time  of  operation  determined,  and  a  sufficient  incentive  has 
been  added  in  the  shape  of  a  bonus  for  performing  the  work 
in  the  time  given  and  in  the  way  specified,  then  work  can  be 
much  more  accurately  controlled  from  the  central  planning 
room  because  it  is  likely  to  be  done  in  approximately  the  time 
determined  and  without  lagging. 

The  execution  of  work  which  is  largely  repetition,  where 
the  individual  processes  are  simple,  reaches  a  very  high  effi- 
ciency in  many  systematized  plants.  The  difficulties  in  secur- 
ing efficiency  increase  as  the  work  becomes  more  various  with 
a  lesser  proportion  of  repeat-work;  and  in  proportion  as 
these  difficulties  increase,  ordinary  systems  fail  to  produce 
results  in  more  intricate  work.  This  can  be  obtained,  however, 
by  the  central  planning  room  from  the  analysis  and  time 
study  which  is  put  into  all  operations  of  work  and  reduced 
instruction  cards. 

65.  Labor  efficiency  under  functional  management. 
—In  reading  the  literature  of  only  a  few  years  ago  one 
is  struck  by  the  emphasis  which  is  put  upon  piece-work 
as  a  means  for  reaching  the  highest  efficiency  and  low- 
ering costs  to  the  minimum.  But  finally  it  dawned  upon 
some  progressive  managers  that  this  system  put  all  the 


266  BUSINESS    MANAGEMENT 

responsibility  upon  the  workman.  Also  it  was  found 
that  there  were  many  kinds  of  work  which  were  not 
adapted  to  the  piece-work  system;  and  even  where  the 
system  was  fitted  to  the  work  the  methods  of  fixing  the 
rates  were  generally  unscientific.  To  grade  a  work- 
man's wages,  the  means  by  which  he  lives,  from  the 
snap  judgment  of  some  foreman  or  an  imperfect  test  of 
some  single  workman,  was  not  considered  just.  Ac- 
cordingly, the  principles  of  scientific  management  have 
been  applied  to  the  problem  of  increasing  the  efficiency 
of  the  working  man. 

The  efficiency  of  the  worker  under  functional  man- 
j  agement  depends  on  five  conditions:  (1)  The  analysis 
of  the  elements  of  an  operation;  (2)  careful  selection  of 
the  worker;  (3)  the  proper  training  of  the  employes; 
(4)  proper  tools  and  equipment;  (5)  an  incentive  to 
work.  The  first  condition  which  every  exponent  of  the 
principles  of  functional  management  demands  is  that 
the  manager  shall  analyze  carefully  and  thoroughly 
every  operation  into  its  ultimate  elements.  When  this 
has  been  done  the  element  shall  then  be  rearranged  in 
their  proper  sequence.  In  order  that  the  working  man 
may  not  fall  back  into  bad  habits  and  thus  into  many 
useless  and  even  harmful  operations,  written  instruc- 
tions are  given  to  him  to  follow.  This  will  include  not 
only  the  proper  sequence,  but  the  time  elements  which 
have  been  determined.  Mr.  Gilbreth,  the  efficiency  engi- 
neer, it  will  be  remembered,  by  a  simple  analysis  and 
synthesis  which  he  calls  motion  study,  eliminated  six- 
teen unnecessary  motions  from  the  operation  of  brick- 
laying. 

66.  How  scientific  selection  aids  discipline. — The  sec- 
ond condition,  that  of  the  scientific  selection  of  the 
worker,  is  fulfilled  after  a  careful  analysis  of  the  dif- 


TYPES    OF    MANAGEMENT  267 

ferent  mental  characteristics  necessary  to  carry  on  a 
given  line  of  work.  Dr.  Katherine  Blackford,  in  a 
paper  entitled  "The  Scientific  Selection  of  Men  in 
Building  up  an  Organization,"  mentions  a  firm  where 
the  average  sales  of  the  salesmen  ranged  from  $16,000 
a  year  to  $200,000  a  year  and  she  pertinently  remarks 
that  by  scientifically  selecting  their  men  this  great  dis- 
crepancy might  be  reduced. 

Although  much  of  this  work  falls  within  the  field  of 
the  psychologist,  nevertheless  there  are  certain  broad 
types  of  men  which  can  be  easily  recognized  by  any 
manager.  Generally  speaking,  there  are  certain  types 
which  are  speculative  and  optimistic  in  their  disposition. 
These  men  are  inventive  and  like  to  create  the  ideas  or 
plans  which  someone  else  is  to  work  out.  They  natur- 
ally incline  to  aggressive  forms  of  work,  such  as  sales- 
manship, advertising  and  promotion.  On  the  other 
hand,  there  is  the  conservative  type,  the  man  who  is 
serious  minded  and  rather  unsocial.  As  a  rule,  this  type 
prefers  to  work  out  and  perfect  a  plan  which  other 
minds  have  conceived.  But  a  scientific  selection  of  the 
workers  is  practical  only  after  a  scientific  analysis  of 
the  operations  has  been  made. 

67.  How  training  helps  discipline. — The  third  condi- 
tion for  getting  the  highest  efficiency  under  the  func- 
tional plan  demands  that  the  worker  shall  be  trained. 
This  method,  therefore,  provides  for  a  functional  fore- 
man whose  duty  it  is  to  train  the  workmen  and  help 
them  on  each  job.  The  manager  under  this  system  does 
not  assume  that  the  workingman  knows  anything  about 
the  work.  He  is  held  responsible  for  seeing  that  the 
work  is  done  correctly  and  if  it  is  not,  it  is  his  duty  to 
find  out  why  the  workingman  fails  and  then  help  him 
do  it  as  it  should  be  done  according  to  instructions. 


268  BUSINESS    MANAGEMENT 

68.  Proper   tools  must  be  furnished. — The   fourth 
condition  demands  that  the  management  shall  supply 
the  worker  with  the  proper  tools  and  equipment  as  and 
when  needed  for  each  operation.    And  furthermore  it  is 
the  management's  duty  to  see  that  the  machines  are 
maintained  in  first-class  condition  so  that  all  belt  and 
tool  failures  be  reduced  to  the  minimum. 

69.  Best  discipline  gained  by  proper  incentive. — The 
fifth  condition  makes  it  necessary  for  the  management 
to  supply  the  workingman  with  the  proper  incentive. 
It  is  not  enough,  however,  for  the  management  to  show 
the  worker  that  it  is  to  his  financial  interest  to  be  indus- 
trious, but  the  management  must  do  everything  in  its 
power  to  make  it  possible  for  the  worker  to  increase  his 
earnings   by   increased   industry.     Various   tests    and 
bonus  systems  of  payment  have  failed  because  the  man- 
ager neglected  this  important  incentive.     Under  the 
functional  system,  however,  the  man  who  does  not  re- 
ceive his  materials  promptly  and  on  time,  or  whose  ma- 
chine is  not  in  good  condition,  all  of  which  brings  about 
many  delays,  does  not  hesitate  to  complain  to  the  gang 
boss  at  once.    The  latter  is  just  as  much  interested  as 
the  working  man  is  in  the  latter's  receiving  his  bonus, 
for  if  the  laborer  does  not  get  his  increased  pay,  the  gang 
boss  may  lose  his.     Thus  the  spirit  of  cooperation  is 
induced,  whereby  both  these  men  make  it  their  duty  to 
see  that  the  management's  policy  is  promoted. 

70.  Taylor's  description  of  functional  management. 
' — It  may  be  well  at  this  point  to  see  how  the  originator 
of  the  system  of  functional  management  looks  upon  it. 
This  plan,  in  the  judgment  of  Mr.  Taylor,  can  be  best 
introduced  by  abandoning  the  military  type  of  organi- 
zation and  establishing  two  broad  and  sweeping  changes 
in  the  art  of  management. 


TYPES    OF    MANAGEMENT  269 

(1)  As  far  as  possible  the  workman,  as  well  as  the  gang 
bosses   and   foremen,   should  be   entirely   relieved   of  the  work 
of  planning   and  all  work  which  is  more  or  less  clerical  in  its 
nature.     All  possible  brain  work  should  be  removed  from  the 
shop  and  centered  in  the  planning  or  laying-out  department, 
leaving  for  the  foremen  and  gang  bosses  work  strictly  execu- 
tive in  its  nature ;  their  duties  being  to  see  that  the  operations 
planned  and  directed  from  the  planning  room  are  promptly 
carried  out  in  the  shop.     Their  time  should  be  spent  with  the 
men,  teaching  them  to  think  ahead,  and  leading  and  instruct- 
ing them  in  their  work. 

(2)  Throughout  the  whole   field   of  management  the   mili- 
tary type  of  organization  should  be  abandoned,  and- what  may 
be  called  the  functional  type  substituted  in  its  place. 

Functional  management  consists  in  so  dividing  the  manage- 
ment that  each  man  from  the  assistant  superintendent  down 
shall  have  as  few  functions  as  possible  to  perform.  If  practic- 
able the  work  of  each  man  should  be  confined  to  the  perform- 
ance of  a  single  leading  function.  Under  the  ordinary  or  mili- 
tary type  the  workmen  are  divided  into  groups.  The  men  in 
each  group  receive  their  orders  from  one  man  only,  the  fore- 
man or  gang  boss  of  the  group.  This  man  is  the  single  agent 
through  which  the  various  functions  of  the  management  are 
brought  into  contact  with  the  men.  Certainly  the  most 
marked  outward  characteristic  of  "Functional  Management" 
lies  in  the  fact  that  each  workman,  instead  of  coming  in  direct 
contact  with  the  management  at  one  point  only,  namely, 
through  his  gang  boss,  receives  his  daily  orders  and  help  di- 
rectly from  eight  different  bosses,  each  of  whom  performs  his 
own  particular  function.  Four  of  these  bosses  are  in  the 
planning  room,  and  of  these  three  send  their  orders  to  and 
receive  their  returns  from  the  men,  usually  in  writing.  Four 
others  are  in  the  shop  and  personally  help  the  men  in  their 
work,  each  boss  helping  in  his  own  particular  line  or  function 
only.  Some  of  these  bosses  come  in  contact  with  these  men 
only  once  or  twice  a  day  and  then  for  a  few  minutes  perhaps, 
while  others  are  with  the  men  all  the  time,  and  help  each  man 


270  BUSINESS    MANAGEMENT 

frequently.  The  functions  of  one  or  two  of  these  bosses 
require  them  to  come  in  contact  with  each  workman  for  so 
short  a  time  each  day  that  they  can  perform  their  particular 
duties  perhaps  for  all  of  the  men  in  the  shop;  while  other 
bosses  are  called  upon  to  help  their  men  so  much  and  so  often 
that  each  boss  can  perform  his  function  but  for  a  few  men, 
and  in  this  particular  line  a  number  of  bosses  are  required, 
all  performing  the  same  function  but  each  having  his  partic- 
ular group  of  men  to  help.  Thus  the  grouping  of  the  men 
in  the  shop  is  entirely  changed,  each  workman  belonging  to 
eight  different  groups  according  to  the  particular  functional 
boss  whom  he  happens  to  be  working  under  at  the  time. 

The  following  is  a  brief  description  of  the  duties  of  the  four 
types  of  executive  functional  bosses  which  the  writer  has 
found  it  profitable  to  use  in  the  active  work  of  the  shop: 
"gang  bosses,"  "speed  bosses,"  "inspector,"  and  "repair 
bosses." 

The  "gang  boss"  has  charge  of  the  preparation  of  all  work 
up  to  the  time  that  the  piece  is  set  in  the  machine.  It  is  his 
duty  to  see  that  every  man  under  him  has  at  all  times  at  least 
one  piece  of  work  at  his  machine,  with  all  the  jigs,  templets, 
drawings,  driving  mechanism,  sling  chains,  etc.,  ready  to  go 
into  his  machine  as  soon  as  the  piece  he  is  actually  working 
on  is  done.  The  "gang  boss"  must  show  his  men  how  to  set 
their  work  in  the  machines  in  the  quickest  time,  and  see  that 
they  do  it.  He  is  responsible  for  the  work  being  accurately 
and  quickly  set,  and  should  not  only  be  able  but  willing  to 
pitch  in  himself  and  show  the  men  how  to  set  the  work  in  rec- 
ord time. 

The  "speed  boss"  must  see  that  the  proper  cutting  tools  are 
used  for  each  piece  of  work,  that  the  work  is  properly  driven, 
that  the  cuts  are  started  in  the  right  part  of  the  piece,  and 
that  the  best  speed  and  feeds  and  depth  of  cuts  are  used.  His 
work  begins  only  after  the  piece  is  in  the  lathe  or  planer,  but 
he  must  see  that  they  do  it  in  the  quickest  time,  and  that 
they  use  the  speeds  and  feeds  and  depth  of  cut  as  directed  on 


TYPES    OF    MANAGEMENT  271 

the  instruction  card.  In  many  cases  he  is  called  upon  to 
demonstrate  that  the  work  can  be  done  in  the  specified  time 
by  doing  it  himself  in  the  presence  of  his  men. 

The  "inspector"  is  responsible  for  the  quality  of  the 
work,  and  both  the  workmen  and  speed  bosses  must  see  that 
the  work  is  all  finished  to  suit  him.  This  man  can,  of  course, 
do  his  work  best  if  he  is  a  master  of  the  art  of  finishing  work 
both  well  and  quickly. 

The  "repair  boss"  sees  that  each  workman  keeps  his  ma- 
chine clean,  free  from  dust  and  scratches,  and  that  he  oils  and 
treats  it  properly,  and  that  all  the  standards  established  for 
the  care  and  maintenance  of  the  machines  and  their  acces- 
sories are  rigidly  maintained,  such  as  care  of  belts  and  shift- 
ers, cleanliness  of  floor  around  machines,  and  orderly  piling 
and  disposition  of  work. 

The  following  is  an  outline  of  the  duties  of  the  four  func- 
tional bosses  who  are  a  part  of  the  planning  department,  and 
who,  in  their  various  functions,  represent  this  department  in 
its  connection  with  the  men.  The  first  three  of  these  send 
their  directions  to  and  receive  their  returns  from  the  men, 
mainly  in  writing.  These  four  representatives  of  the  planning 
room  are,  the  "order-of-work  clerk,"  "instruction-card  man," 
"time-and-cost  clerk,"  and  "shop  disciplinarian." 

Order-of-work  or  route  clerk.  After  the  proper  man  in  the 
planning  department  has  laid  out  the  exact  route  which  each 
piece  of  work  is  to  travel  through  the  shop  from  machine  to 
machine  in  order  that  it  may  be  finished  at  the  time  it  is 
needed  for  assembling,  and  the  work  done  in  the  most  econom- 
ical way,  the  "route  clerk"  daily  writes  lists  instructing  the 
workmen  and  also  all  of  the  executive  shop  bosses  as  to  the 
exact  order  in  which  the  work  is  to  be  done  by  each  class  of 
machines  or  men,  and  these  lists  constitute  the  chief  means 
for  directing  the  workmen  in  this  particular  function. 

Instruction-card  man.  The  "instruction  card,"  as  its  name 
indicates,  is  the  chief  means  employed  by  the  planning  depart- 
ment in  instructing  both  the  executive  bosses  and  the  men  in 


BUSINESS    MANAGEMENT 

all  the  details  of  the  work.  It  tells  them  briefly  the  general 
detail  drawing  to  refer  to;  the  piece  number  and  cost  number 
to  charge  the  work  to;  the  special  jigs,  fixtures,  or  tools  to 
use;  where  to  start  each  cut,  the  exact  depth  of  each 
cut  and  how  many  cuts  to  take;  the  speed  and  feed  to 
be  used  for  each  cut;  and  the  time  within  which  each 
operation  must  be  finished.  It  also  informs  them  as  to 
the  piece  rate  or  the  premium  to  be  paid  for  completing 
the  task  within  the  specified  time  (according  to  the  system 
employed)  ;  and  further,  when  necessary,  refers  them  by  name 
to  the  man  who  will  give  them  special  directions.  This  instruc- 
tion card  is  filled  in  by  one  or  more  members  of  the  plan- 
ning department,  according  to  the  nature  and  complication  of 
the  instructions,  and  bears  the  same  relation  to  the  planning 
room  that  the  drawing  does  to  the  drafting  room.  The  man 
who  sends  it  into  the  shop,  and  who,  in  case  difficulties  are  met 
with  in  carrying  out  the  instructions,  sees  that  the  proper 
man  sweeps  these  difficulties  away,  is  called  "the  instruction- 
card  foreman." 

Time-and-cost  clerk.  This  man  sends  to  the  men  through 
the  "instruction  card"  all  the  information  they  need  for  re- 
cording their  time  and  cost  of  the  work,  and  secures  proper 
returns  from  them  and  refers  these  for  entry  to  the  cost-and- 
time  clerks  in  the  planning  room. 

Shop  disciplinarian.  In  case  of  insubordination  or  impu- 
dence, repeated  failure  to  do  their  duty,  lateness  or  unexcused 
absence,  the  shop  disciplinarian  takes  the  workman  or  bosses 
in  hand  and  applies  the  proper  remedy,  and  sees  that  a  com- 
plete record  of  each  man's  virtues  and  defects  is  kept.  This 
man  should  also  have  much  to  do  with  readjusting  the  wages 
of  the  workmen.  At  the  very  least,  he  should  invariably  be 
consulted  before  any  change  is  made.  One  of  his  important 
functions  should  be  that  of  peace-maker. 

71.  Summary  of  essentials  in  all  types. — The  key- 
note in  management  is  unity  of  purpose,  the  working 


TYPES    OF    MANAGEMENT  273 

together  in  mutual  dependence  for  a  single  result.  The 
best  organization  is  that  which  brings  about  the  closest 
cooperation  among  departments. 

Although  it  is  difficult  to  strike  definite  lines  of  cleav- 
age between  the  various  types  of  management  there  are 
four  principles  underlying  all  organization,  whether 
functional  or  military. 

1.  Planning    and   performance   are    separate   func- 
tions.    The  management  must  have  a  head,  be  it  one 
man  or  a  formal  planning  department.     All  planning 
and  designing  should  be  done  on  paper.    No  one  ques- 
tions the  utility  of  the  drafting  room.    Then  why  ques- 
tion the  utility  of  the  planning  department  ?    It  is  much 
cheaper  to  erase  a  line  than  to  do  a  job  over  again. 
The  cut  and  dried  method  is  the  most  expensive  there  is. 
The  establishment  of  a  formal  planning  department 
does   not  mean  making  additional  work.     It   simply 
means  concentrating  the  planning,  which  must  in  any 
event  be  done  where  it  can  be  done  best.    The  danger 
in  separating  planning  from  execution  is  that  the  de- 
signers may  get  out  of  touch  with  producing  conditions 
and  in  time  become  pedantic.    To  prevent  such  a  hap- 
pening the  Germans  require  staff  officers  to  do  regi- 
mental duty  after  two  years  of  staff  service.    Mr.  Tay- 
lor insists  that  instruction-card  men  be  able  to  justify 
their  allowance  by  doing  the  work  themselves  when 
questioned.     It  is  also  now  generally  agreed  that  a 
planning  or  drafting  office  should  be  placed  in  the  cen- 
ter of  the  shops,  the  office  men  encouraged  to  go  out 
and  get  acquainted  with  shop  methods  and  the  better 
workmen  encouraged  to  enter  the  offices. 

2.  The  organization  must  furnish  the  information 
necessary  to  intelligent  planning;  it  must  get  the  facts. 

3.  Each  workman  in  each  part  of  the  organization 
H-I8 


274  BUSINESS    MANAGEMENT 

must  be  given  all  the  conditions  and  facilities  which 
he  needs  to  carry  on  its  work. 

4.  The  workmen  must  be  secured,  trained  and  han- 
dled. 

Organization  is  absolutely  impersonal.  Each  one  of 
these  principles  applies  regardless  of  who  does  the  plan- 
ning, who  gets  the  facts,  who  furnishes  the  assistance. 
In  order  to  keep  traffic  moving  in  New  York  it  was 
found  necessary  to  organize  the  traffic.  When  two 
drivers  meet  in  a  narrow  street  it  is  immaterial  as  to 
who  backs  out,  but  unless  one  does  traffic  is  going  to 
stop.  At  this  junction  the  traffic  policeman  does  the 
planning  and  the  blockade  is  raised.  It  is  not  that  he 
has  superior  ability,  but  merely  that  to  insure  unity  of 
purpose,  which  is  the  distinguishing  feature  of  organiza- 
tion, planning  must  be  distinct  from  execution.  If 
thirteen  men  are  working  in  a  ditch,  some  one,  be  it  a 
foreman  or  a  planning  department,  must  coordinate 
the  activities  or  they  are  not  going  to  work  together. 

72.  Two  corollaries  of  management. — Let  no  man 
become  indispensable.  Shape  your  man  to  the  organi- 
zation, not  your  organization  to  the  man.  Let  no  man 
be  able  to  become  indispensable  to  the  organization  and 
so  by  his  absence  through  sickness  or  intent  tie  up  the 
work.  Understudies  are  now  the  order  of  the  day  in 
business  as  well  as  on  the  stage.  Each  officer  even  up  to 
the  president  is  required  to  train  a  man  who  can  take 
up  his  work  in  an  emergency. 

Executives  of  the  old  school  object  to  this  practice. 
The  National  Cash  Register  Company  when  adopting 
it,  after  repeated  requests  of  its  higher  officials  to  select 
understudies,  found  it  necessary  to  intimate  pleasantly 
that  if  the  executive  did  not  train  the  man  it  would  be 
necessary  to  get  some  one  else  to  do  so.  After  the 


TYPES    OF    MANAGEMENT  275 

system  was  once  established,  however,  the  very  men 
who  had  opposed  it  became  enthusiastic  because  it  gave 
them  more  freedom.  When  occasion  arose  they  could 
devote  themselves  to  special  work,  by  temporarily  let- 
ting their  understudies  handle  the  regular  routine. 

73.  Shape  the  man  to  the  organization. — Shape  the 
man  to  the  organization,  not  the  organization  to  the 
man.  Organization  dictates  that  the  best  men  should 
be  placed  at  the  head  to  plan  and  organize  the  work  for 
less  able  men.  When  exceptional  men  assert  them- 
selves they  should  not  be  allowed  to  break  down  the 
machinery  and  do  the  work  bare  handed  but  should 
at  once  be  given  important  positions  where  they  can  by 
constructive  work  strengthen  that  machinery.  In  fact, 
it  is  to  such  exceptional  men  that  the  rule  applies  with 
special  force.  "Let  no  man  become  indispensable." 
For  if  he  does,  the  organization  collapses  with  his  exit. 
He  ruins  instead  of  building  up  the  company.  The 
notable  movement  of  our  time  by  which  successful  in- 
dividuals are  incorporating  their  companies,  thereby 
voluntarily  subordinating  themselves  to  their  ideas, 
shows  that  the  really  big  men  recognize  this  impersonal 
nature  of  organization. 

While  these  four  principles  contain  no  fundamentally 
new  ideas  they  sum  up  all  the  principles  of  "scientific 
management."  The  method  of  the  efficiency  engineer 
is  distinct  not  because  it  enumerates  new  principles, 
but  because  it  applies  in  greater  detail  and  in  a  more 
systematic  way  principles  which  are  well  established 
and  in  universal  use. 

The  most  primitive  f orm  pj  management  and  the 
form  which  is  still  the  most  efficient  in  small  matters  is 
observed  in  those  cases  where  the  owner  carries  his  "of- 
fice in  his  hat."  This  primitive  owner  or  foreman  per- 


276  BUSINESS    MANAGEMENT 

forms  each  one  of  these  functions.  He  plans  the  work 
of  the  office,  he  digs  up  the  information  he  needs,  he 
provides  the  necessary  machines  and  materials  and 
\hires  and  instructs  his  workmen.  When  the  es- 
tablishment grows  beyond  the  capacity  of  one  hat 
some  or  all  of  these  functions  must  be  delegated  to  oth- 
ers. He  hires  a  draftsman,  and  a  bookkeeper  and  lets 
his  foreman  hire  and  instruct  the  workmen.  As  the 
work  increases  other  departments  are  added  as  needed 
and  the  organization  becomes  more  complex.  Perma- 
nent progress  in  this  wrorld  is  after  all  a  process  of 
evolution,  not  revolution.  Steadily  from  generation  to 
generation  the  efficiency  of  manufacture,  of  agricul- 
ture, of  transportation  and  of  all  the  many  other  activi- 
ties which  form  a  part  of  our  complex  civilization,  has 
increased.  Though  our  methods  are  still  far  from  per- 
fect we  may  look  forward  to  a  similar  or  even  greater 
progress  in  the  future. 


CHAPTER  V 

MODERN    AIDS    IN    MANAGEMENT 

74.  Real  management  is  concerned  with  policies,  not 
details. — Most  managers  will  admit  that  they  are  handi- 
capped because  they  must  attend  to  too  many  details. 
Foremen,  superintendents  and  bosses  will  generally 
admit  that  they  are  overworked.  Yet  if  a  superior  of- 
ficer should  suggest  that  some  of  their  duties  be  light- 
ened or  removed,  how  many  of  these  men  would  submit 
without  any  protest?  It  is  this  factor  in  human  nature, 
which  does  not  wish  to  surrender  any  element  of  author- 
ity, that  stands  in  the  way  of  progressive  management 
more  than  any  other.  One  frequently  hears  the  remark 
made  that  the  head  of  the  concern  is  the  last  one  to  be 
convinced  that  his  own  organization  might  be  helped 
and  his  own  effectiveness  increased  if  some  of  his  re- 
sponsibilities were  shifted  to  the  backs  of  other  men. 
He  is  more  likely  to  object  because  he  has  more  author- 
ity to  surrender  than  the  men  below  him. 

However  strenuous  may  be  the  objection  in  certain 
quarters  to  any  particular  system  of  scientific  manage- 
ment, it  is  generally  conceded  that  there  are  certain 
aids  which  will  help  the  manager  to  lighten  his  burden 
and  increase  his  efficiency  without  surrendering  or  les- 
sening any  part  of  his  total  authority.  Not  all  of  these 
aids,  of  course,  can  be  mentioned,  but  a  few  which  have 
been  tried  and  found  successful  will  be  given.  Perhaps 
the  simplest  aid  is  that  of  a  chart  showing  the  form  of 
the  organization,  the  effectiveness  of  which  will  be  much 

277 


278  BUSINESS    MANAGEMENT 

increased,  if  it  is  supplemented  by  an  organization  rec- 
ord. Other  devices  which  are  gradually  being  adopted 
in  whole  or  in  part  are  the  planning  department,  time 
studies,  standards,  mnemonic  symbols,  bonus  rewards 
for  labor  and  welfare  work. 

75.  Organization  charts. — A  chart  showing  clearly 
the  line  of  authority  and  of  responsibility  of  each  in- 
dividual in  an  organization  will  go  far  toward  removing 
many  inter-departmental  jealousies.    The  chart  should 
be  so  simple  that  it  is  self-explanatory  upon  inspection. 
Each  man's  position  is  thus  made  perfectly  clear  and 
he  easily  informs  himself  as  to  what  course  to  take 
when  transacting  business  with  other  departments.    If 
applied  to  a  factory,  each  workman  will  know  to  what 
particular  gang  boss  or  job  boss  he  is  directly  responsi- 
ble; each  gang  boss  or  job  boss  will  know  to  what  fore- 
man he  must  report;  and  each  foreman  will  know  to 
what  superintendent  he  is  responsible;  and  each  super- 
intendent will  know  where  his  authority  begins  and  ends 
with  respect  to  other  departmental  heads.     Further- 
more, the  chart  should  show  who  is  responsible  for  ma- 
chines and  equipment.    To  be  most  effective  the  chart 
should  be  hung  in  a  conspicuous  place.     Each  of  the 
manufacturing  departments  should  have  one  as  we1!  as 
the  office;  24x36  inches  is  a  suitable  size.    When  made 
in  the  form  of  blue-prints  charts  are  inexpensive,  but 
they  should  be  framed  and  protected  by  glass,  to  shield 
them  from  pencil  markings  and  other  injuries. 

76.  Charts  clarify  ideas. — These  charts  will  not  only 
prove  themselves  an  aid  in  instructing  the  employes 
in  the  workings  of  the  organization,  but  they  will  be 
found  to  be  of  great  value  in  helping  the  manager  to 
clarify  his  own  ideas  and  in  adding  to  his  information 
regarding  his  own  organization.     Any  manager  who 


MODERN    AIDS    IN    MANAGEMENT  279 

has  never  planned  a  chart  of  this  kind  will  be  surprised 
to  find  how  many  gaps  there  are  in  his  knowledge  of  his 
own  plant.  Furthermore,  the  making  of  such  a  chart 
compels  the  manager  to  look  upon  his  organization 
from  the  point  of  view  of  functions  and  activities  rather 
than  from  the  standpoint  of  the  persons  who  are  run- 
ning the  business. 

This  elimination  of  the  personal  equation  is  one  of 
the  first  things  which  the  manager  must  accomplish  if 
he  would  obtain  absolute  control  of  his  business.  He 
can  then  look  at  his  organization  as  though  it  were  a 
machine,  and  having  studied  the  various  parts  and 
their  functions  he  can  then  take  up  the  question  of  the 
personnel  and  compare  the  qualifications  of  the  men 
who  might  run  that  particular  part  of  the  organiza- 
tion. 

The  following  chart  (Fig.  10)  brings  out  in  a  graphic 
way  the  elements  mentioned  above.  This  particular 
form  of  organization  was  taken  for  various  reasons.  It 
is  a  good  illustration  of  that  type  of  organization  in 
which  the  departmental  or  functional  principle  is  car- 
ried out  in  a  modified  way  to  suit  a  small  industrial 
plant.  Furthermore  it  shows  the  position  of  the  plan- 
ning department  relatively  to  the  other  departments. 

It  will  be  noticed  on  this  chart  (Fig.  10)  that  the 
press  shop  is  divided  into  groups  of  men  and  machines. 
Each  group  has  a  gang  boss,  who  is  responsible  to  the 
press  shop  foreman.  The  departments  other  than  the 
press  shop  are  all  small  and  employ  but  few  men,  except 
the  tool  room  and  die  shop.  The  erecting  floor  is  in 
charge  of  the  gang  boss  under  whom  are  several  assist- 
ant gang  bosses,  according  to  the  number  of  jobs  or 
different  kinds  of  work  in  process  on  the  floors  as- 
signed. 


280 


BUSINESS    MANAGEMENT 


MODERN    AIDS    IN    MANAGEMENT  281 

It  will  be  noticed  that  the  planning  department  is 
the  medium  through  which  the  superintendent  controls 
the  shop.  All  orders,  designs,  detailed  drawings,  super- 
vision of  new  work,  etc.,  emanating  from  either  the 
counting  room  or  the  engineering  and  drafting  room, 
pass  through  the  superintendent's  hands  and  the  plan- 
ning department  before  reaching  the  manufacturing 
department. 

77.  Organization  records. — The  organization  chart 
will  meet  its  full  possibilities  only  when  it  is  supple- 
mented by  the  organization  record.    This  consists  of  a 
book  of  written  instructions  covering  the  duties  of  each 
person  shown  on  the  organization  chart.    Copies  of  this 
record  are  furnished  to  each  employe  or  officer  con- 
cerned.   Managers  who  add  this  important  aid  to  their 
equipment  will  promote  their  interests  in  three  ways: 
1.  Oral  instructions  are  often  misunderstood,  but  more 
often  they  are  forgotten;  2.  Writing  out  instructions 
generally  clarifies  the  ideas  of  the  men  who  issue  them ; 
3.  It  leaves  a  permanent  record  of  all  instructions  which 
have  been  issued,  often  avoiding,   as  a   consequence, 
many  confusions  and  conflicts  of  authority.    Verbal  in- 
structions leave  no  written  record  for  future  incumbents 
of  the  position.     Employes  who  are  removed  to  other 
departments  or  who  leave  the  employment  of  the  firm 
altogether  often  carry  with  them  knowledge  of  impor- 
tant details  which  the  firm  is  likely  to  lose  because  the 
foreman,  not  appreciating  the  importance  of  these  de- 
tails in  the  work,  neglects  to  see  that  they  are  kept  up. 
Under  proper  written  instructions,  however,  this  could 
not  occur,  for  all  important  details  are  noted  as  being 
a  part  of  the  whole  operation. 

78.  Written  records  a  basis  for  standards. — It  should 
be  noted  here  also  that  a  slip  of  written  instructions  is 


282  BUSINESS    MANAGEMENT 

absolutely  necessary  if  a  manager  wishes  to  adopt  one 
of  the  further  aids  mentioned  later  on,  namely,  prede- 
termined standards  for  the  accomplishment  of  his  work. 
If  such  a  record  is  properly  kept  up  it  will  furnish 
the  management  a  complete  account  of  all  the  details  of 
the  business.  Such  a  record  will  also  contain  all  the 
forms  from  the  accounting  and  other  departments  with 
full  description  and  explanation  of  their  uses. 

It  need  hardly  be  mentioned  that  all  changes  of  the 
instructions  should  be  written  out  and  copies  handed 
to  the  persons  affected  and  a  duplicate  posted  in  the 
organization  records.  It  may  not  be  necessary  to 
record  the  duties  of  the  manager,  but  beginning  with  the 
assistant  manager  and  continuing  on  down  to  the  low- 
est man  in  the  organization,  [the  record  should  contain 
written  instructions  covering  the  specific  duties  of  each 
man. '  These  instructions,  if  compiled  in  book  form, 
would  make  a  good-sized  volume,  and  the  collection  of 
the  data  requires  much  time  and  labor.  Even  after  the 
information  is  gathered  it  has  to  be  continually  revised. 
These  are  objections  generally  offered  against  adopting 
it  as  an  aid  to  the  manager.  If  all  this  information 
which  is  floating  about  in  the  possession  of  the  em- 
ployes, but  unknown  to  the  manager,  is  vitally  essen- 
tial to  the  accomplishment  of  the  work,  then  it  is  well 
worth  while  to  have  it  put  down  in  writing  even  though 
it  does  require  much  labor  and  money. 

79.  Planning  department. — One  of  the  commonest 
sights  in  the  ordinary  machine  shop  is  to  see  men  run- 
ning here  and  there  looking  for  tools,  materials  or  for 
further  instructions.  To  a  greater  or  less  extent  this 
is  true  in  every  business  which  has  not  adopted  some 
method  of  routing  material  or  tools  to  the  mechanic  and 
supplies  to  the  clerks  and  operators  whereby  they  may 


MODERN    AIDS    IN    MANAGEMENT  283 

be  supplied  with  everything  necessary  to  carry  out  their 
work.  Such  a  condition  denotes  a  lack  of  strict  super- 
vision. This  situation  has  grown  up  largely  because  in- 
dustries have  increased  so  in  size,  that  is,  each  business 
has  been  adding  to  its  equipment  and  to  its  labor  force ; 
on  the  other  hand,  however,  it  has  not  had  a  correspond- 
ingly large  extension  in  the  departments  of  manage- 
ment and  administration. 

A  machine  shop,  for  instance,  employing  a  superin- 
tendent and  a  foreman  would  be  called  upon  to  super- 
vise the  efforts  of  125  men  or  more.  They  were  per- 
haps given  clerical  assistance  to  the  extent  of  two  or 
three  clerks;  and  such  a  situation  might  be  considered 
an  ideal  one  by  many  managers.  The  so-called  non- 
productive labor  has  been  reduced  to  the  minimum. 
Such  managers,  however,  lose  sight  of  the  fact  that  the 
brain  energy,  namely,  the  planning  which  must  accom- 
pany every  operation,  forms  the  greatest  part  of  the 
work.  It  is  the  same  old  story  again  of  making  the 
brain  save  the  heels;  and  in  an  office,  shop  or  factory 
when  the  heels  of  the  employes  are  working,  generally 
some  machine  or  important  costly  device  is  being  left 
unused  and  the  output  is  being  restricted  by  the  unpro- 
ductive activity  of  both  men  and  machine.  A  flock  of 
"order  chasers"  running  through  a  plant  is  a  sure  sign 
that  there  is  little  direct  supervision  or  centralized  con- 
trol of  the  productive  process. 

The  motto  of  many  business  executives  seems  to  be 
"millions  for  machines  and  expert  machinists,  but  not 
one  cent  for  supervision."  Money  spent  for  men  who 
would  plan  the  work  before  it  enters  the  operating  de- 
partment is  looked  upon  as  tribute.  It  appears  that 
one  of  the  best  aids  in  overcoming  the  handicap  imposed 
upon  the  manager  by  the  extensive  operations  which 


284  BUSINESS    MANAGEMENT 

must  be  urged  on  under  modern  business  conditions  is 
the  establishment  and  maintenance  of  a  planning  de- 
partment.1 

80.  Planning  is  specialized  management. — Planning 
is  carrying  the  idea  of  specialization  which  has  been 
operating  in  the  production  side  of  our  industries  for 
the  last  hundred  years  into  the  supervising  activities. 
Specially  trained  men  must  plan  and  analyze  all  the 
work,  methods,  etc.,  and  prepare  the  way  for  the  work- 
ingman  to  produce  at  his  highest  efficiency.    The  work- 
ingman  is  skilled  in  his  trade;  he  is  a  specialist.     The 
man  in  the  planning  department  is  skilled  in  analysis 
and  he  also  is  a  specialist.     The  duty  of  the  planning 
department  is  to  find  "the  one  best  way"  for  doing  a 
thing  before  a  cent  has  been  spent  either  in  labor  or 
material.     It  designs  the  job,  prepares  proper  details 
and  drawings,  analyzes  the  work  in  its  various  elements 
and  routes  it  in  its  future  progress  through  the  office, 
store  or  shop.    When  this  is  done  it  is  easily  seen  that 
the  greatest  part  of  the  work  has  been  accomplished, 
for  planning  means  brain  work.     The  savings  made 
after  the  introduction  of  such  a  department  are  not  al- 
ways of  the  spectacular  kind,  such  as  were  effected  when 
the  new  tool  steels  were  first  introduced;  nevertheless 
the  gains  are  important  even  though  they  are  made  up 
of  innumerable  small  savings. 

81.  An  example  from  the  machine  shop. — Mr.  H.  K. 
Hathaway,  Vice-President  of  the  Tabor  Manufactur- 
ing Company  of  Philadelphia,  related  an  experience 
before  the  Dartmouth  conference  on  scientific  manage- 
ment which  is  very  much  to  the  point. 

lit  may  be  well  for  the  reader  at  this  point  to  turn  back  to  Chapter  IX  in 
Part  I  and  review  the  brief  sketch  of  the  organization  of  the  planning  depart- 
ment there  given. 


MODERN    AIDS    IN    MANAGEMENT  285 

In  the  assembling  department  of  the  Tabor  plant,  at  the 
time  we  started  to  install  the  planning  department  we  had 
eleven  men  acting  as  erectors,  putting  up  machinery,  and  they 
assembled  about  nineteen  machines  a  month  on  an  average. 
Now  we  have  six  men,  and  they  assemble  between  sixty  and 
seventy  machines  per  month. 

It  might  be  interesting  to  know  to  what  that  is  due.  Under 
the  old  scheme  the  assemblers  were  assigned  a  job  by  the  fore- 
man. An  assembler  would  come  up  to  the  foreman  and  want 
to  know  what  he  should  do,  and  the  foreman,  after  looking 
around,  would  decide  that  he  might  as  well  start  assembling  a 
machine  or  a  lot  of  machines.  Apparently  the  materials  were 
all  on  hand.  There  were  at  least  enough  of  the  larger  parts 
so  that  it  looked  as  if  he  had  enough  to  start  on.  The  man 
would  start  to  assemble  a  machine.  He  would  progress  to  a 
certain  point  and  find  some  small  part  missing,  without  which 
he  could  not  proceed  with  his  work.  That,  of  course,  would 
necessitate  his  looking  around  to  find  where  the  part  was. 
In  a  good  many  cases  he  would  wait.  He  would  go  to  the 
machine  shop  and  inquire  from  one  man  to  another  until  he 
finally  found  whether  it  had  been  made  or  not.  If  it  hadn't 
been  made,  he  frequently  would  wait  until  it  was,  keeping  out 
of  the  way  of  the  boss  until  he  could  proceed  with  his  work. 
So  about  as  much  time  was  spent,  under  the  old  scheme,  in 
hunting  up  the  materials  and  waiting  for  materials  as  there 
was  in  actually  doing  the  work.  Another  source  of  delay  at 
that  time  was  that  a  man  would  start  to  assemble  certain 
parts,  put  them  together,  and  find  that  they  wouldn't  go  to- 
gether. That  would  necessitate  his  chipping,  filing,  and 
scraping,  until  he  finally  could  make  them  go  together;  in 
other  words,  correcting  errors  of  the  drafting  department  and 
of  the  machine  shop.  Such  conditions  do  not  exist  under  the 
new  scheme.  A  man  is  never  started  doing  assembling  work 
until  we  are  sure  he  has  all  of  the  materials  on  hand  which 
are  required  to  complete  the  assembling  operation  assigned  to 
him.  The  parts,  as  they  are  delivered  from  the  machine  shop, 
are  placed  in  certain  racks  or  bins.  The  parts  from  the  stores 


286  BUSINESS    MANAGEMENT 

are  delivered  at  the  proper  time,  and  when  all  of  the  parts 
which  enter  into  a  certain  group  of  the  machine,  or  the  entire 
machine  if  it  is  a  simple  one,  are  ready,  we  issue  an  order  for 
one  of  the  assembling  men  to  perform  certain  features  of  the 
operation.  In  that  way  we  eliminate  the  time  wasted  in  hunt- 
ing around  for  material  for  the  job.  We  get  away  from  the 
chipping  and  scraping  and  filing  finally  necessary  to  make 
things  go  together,  to  an  adequate  scheme  of  inspection. 
There  is  no  question  in  the  mind  of  the  man  doing  the  machine 
work  what  the  requirements  are.  As  soon  as  the  job  is  put 
on  the  machine,  the  inspector  goes  there  and  instructs  the  man 
as  to  the  degree  of  accuracy  required,  the  kind  of  finish  and 
any  other  matters  pertaining  to  the  quality. 

When  the  job  has  been  finished,  the  inspector  goes  there 
again  and  inspects  every  piece  in  the  lot,  with  respect  to  that 
operation,  to  see  that  no  errors  have  been  made.  If  there  have 
been,  they  are  at  once  reported  and  corrected,  before  the  ma- 
terial arrives  on  the  assembling  floor.  Formerly  they  were 
not  corrected,  and  were  not  discovered  until  the  material  ar- 
rived on  the  assembling  floor.  It  is  the  case  in  many  shops 
to-day,  even  comparatively  well-run  shops,  that  errors  are  not 
discovered  until  the  material  has  reached  the  point  where  it 
is  to  be  used.  By  eliminating  those  two  sources  of  trouble 
and  by  doing  certain  things  to  assist  the  workman,  such  as 
having  materials  placed  on  his  bench  or  on  the  floor  for  him 
in  advance,  and  having  his  drawings  and  his  instructions  de- 
livered to  him  in  advance,  we  have  been  able  to  increase  the 
output  of  the  assembly  from  two  machines  per  man  per  month 
to  nine  machines  per  man  per  month. 

82.  Planning  and  overhead  expense. — The  chief  ob- 
jection offered  by  many  managers  to  the  introduction 
of  the  planning  department  is  the  added  overhead  ex- 
pense. They  look  upon  all  planning  expense  as  non- 
productive and  when  it  means  that  there  shall  be  one 
man  for  the  planning  department  for  every  three  to  five 


MODERN    AIDS    IN    MANAGEMENT  287 

men  in  the  operating  department  the  proposition  ap- 
peals to  them  as  absurd.  Besides  this  the  outlay  for 
printed  forms  and  office  supplies  is  largely  increased. 
But  before  judgment  is  passed  it  is  well  to  look  at  the 
results.  If  the  total  net  cost  is  not  increased  it  makes 
little  difference  whether  the  money  is  spent  on  pro- 
ducers or  the  so-called  non-producers.  In  the  case  pre- 
sented by  Mr.  Hathaway  the  total  number  of  men  em- 
ployed under  the  new  system  was  not  more  than  that 
employed  under  the  old  system.  They  were  simply  dis- 
tributed differently.  Under  the  old  system  he  em- 
ployed 125  men  in  the  operating  end  and  two  clerks  in 
the  office.  With  the  planning  department  added  he 
now  has  100  men  in  the  shop  and  25  in  the  planning 
room. 

The  overhead  charges  naturally  increased  but  they 
were  far  from  being  "non-productive."  The  product 
turned  out  was  three  times  what  it  was  before  this  new 
aid  to  the  management  was  added.  Such  an  outcome 
simply  puts  the  addition  of  a  planning  department  on 
the  basis  of  any  investment.  It  is  in  reality  spending 
money  looking  to  future  increased  returns.  Mr.  Park- 
hurst  claims  that  for  a  shop  employing  a  few  hundred 
men  only  about  six  additional  employes  in  the  new 
planning  department  were  necessary.  The  cost  for  the 
six  additional  men  in  wages  totaled  about  $4,000  per 
year.  For  additional  stationery,  office  room,  etc.,  this 
sum  was  increased  by  $1,000.  But  this  change  brought 
about  a  doubling  of  output,  not  to  mention  the  perma- 
nent assistance  obtained  by  the  manager  through  hav- 
ing at  hand  a  force  of  men  investigating,  collecting  and 
utilizing  knowledge  which  he  could  not  possibly  get  un- 
aided. 

83.  Evolution   of   the   planning   department. — The 


288  BUSINESS    MANAGEMENT 

organization  of  the  planning  department  is  a  natural 
evolution  of  much  interest  to  the  student  of  manage- 
ment. Under  the  traditional  system  of  management 
the  foreman  and  workingmen  after  deciding  in  a  gen- 
eral way  what  was  to  be  done  put  the  job  into  the 
shop  and  studied  out  how,  when  and  where  it  was  to 
be  done  after  the  operation  had  been  set  in  motion.  It 
is  perfectly  evident  to  most  managers  to-day  that  it  is 
not  safe  to  trust  the  planning  of  what  is  to  be  done  to 
the  men  who  are  to  supervise  the  execution  of  the  work. 
But  it  took  many  years  before  the  establishment  of  the 
drafting  department  was  considered  anything  else  than 
an  extra  expense  or  burden.  Just  as  the  planning  of 
what  is  to  be  done  before  the  work  is  put  into  the  shop 
was  found  to  be  even  more  economical  when  put  into 
the  hands  of  special  experts,  so  will  there  be  even 
greater  savings  when  the  planning  of  how,  when  and 
where  the  work  shall  be  done  is  taken  from  the  shoul- 
ders of  the  foreman  and  the  men  in  the  shop,  and  is 
also  put  in  a  special  department  called  the  planning 
department.  It  will  be  seen  at  once,  therefore,  that 
nothing  is  done  in  the  planning  department  that  does 
not  have  to  be  done  by  someone  in  the  place  under  any 
scheme  of  management.  Some  workmen  are  good  at 
planning  their  work,  but  others  are  not.  Thus,  it  ap- 
pears, if  the  best  man  in  this  respect  is  selected  for  the 
position  of  planning  the  work,  all  the  less  efficient  men 
will  get  the  advantage  of  his  greater  sagacity. 

84.  Thoughtful  plans  make  valuable  records. — Not 
long  after  such  a  man  is  put  in  full  charge  of  the  plan- 
ning it  is  found  that  greater  force  even  than  his  intelli- 
gence is  developed.  This  is  the  classified  and  recorded 
data  which  is  gradually  accumulated,  and  which  be- 
comes a  source  of  knowledge  in  planning  the  best  meth- 


MODERN    AIDS    IN    MANAGEMENT 

ods  greater  than  that  furnished  by  any  individual  man's 
experience. 

85.  Advantages  of  planning  in  advance. — It  is  easy 
to  show  the  advantage  of  planning  ahead  in  order  to 
provide  necessary  materials,  tools,  etc.,  but  to  make  men 
see  that  it  is  just  as  necessary  to  plan  the  movements, 
operations,   etc.,    ahead   is   more   difficult.      However, 
where  this  has  been  done  further  subdivisions  of  the 
planning  department  are  necessary.    The  work  of  the 
planning  department  is  divided  into  two  general  classes, 
planning  how  each  job  is  to  be  done  and  planning  when 
it  is  to  be  done.    Under  the  first  heading  come  the  fol- 
lowing specialists:    route  clerks,  instruction-card  men 
and  time-study  men.    Under  the  second  heading  come 
the  production  clerks  and  the  order-of-work  clerks.    It 
was  soon  found,  however,  in  shops  making  a  diversified 
product  that  further  subdivision  of  the  work  in  the 
planning  department  must  be  made.    Accordingly,  we 
find  men  performing  duties  such  as  recording  clerks, 
balance-of-stores    clerks,    foundry    clerks,    clerks   who 
write  up  the  numerous  details,  make  out  orders,  tags, 
etc.,  time-keeping  and  cost-keeping  clerks,  and  various 
others. 

86.  Proportion  of  planners  to  doers. — The  question 
of  how  many  of  these  men  will  be  needed  in  the  plan- 
ning department  depends  entirely  oh  the  nature  of  the 
specific  business.     Some  businesses  will  require  two  or 
more  men  for  each  of  the  positions,  whereas  in  others 
two  or  more  of  the  functions  may  be  put  under  the  di- 
rection of  one  man.    In  one  shop,  for  instance,  employ- 
ing several  hundred  men,  four  clerks  in  the  planning 
department  handle  all  the  work,  while  in  another  con- 
cern, employing  only  about  one  hundred  men,  twenty- 
five  clerks  are  necessary.     The  first  concern  manufac- 

n— 19 


290  BUSINESS    MANAGEMENT 

tures  a  limited  variety  of  products  in  large  quantities 
under  standard  designs;  the  second  concern  manufac- 
tures a  great  variety  of  goods  in  small  quantities  and 
with  frequent  necessary  changes  in  their  design.  In 
the  first  case  a  man  at  a  machine  may  run  on  the  same 
job  or  a  similar  job  for  a  month,  whereas  in  the  second 
concern  each  workman  is  employed  on  three  or  four 
different  jobs  every  day.  It  will  be  seen  at  once,  there- 
fore, that  a  description  of  any  one  planning  department 
will  be  incomplete,  but  for  our  purpose  it  is  best  to  take 
the  more  complex  form  where  the  duties  of  the  various 
men  have  been  clearly  differentiated  and  put  into  the 
hands  of  individual  persons.  This  will  make  it  easier  to 
explain  and  much  easier  to  comprehend,  since  each  func- 
tion will  have  an  individual  man  to  carry  it  out. 

Perhaps  the  organization  of  the  department  can  be 
most  easily  understood  if  we  take  up  the  duties  of  each 
clerk  as  they  arise  in  planning  for  a  manufacturing 
order.  Each  man  in  turn  will  receive  this  order  and 
work  out  the  plans  which  come  under  his  jurisdiction.1 

87.  Planning  room  of  a  manufacturing  concern.— 
The  example  cited  is  that  of  a  manufacturing  concern. 
Its  planning  department  is  composed  of  the  follow- 
ing: (1)  production  clerk,  (2)  route  clerk,  (3)  foundry 
clerk,  (4)  balance-of -stores  clerk,  (5)  instruction-card 
clerk,    (6)    route-file   clerk,    (7)    order-of-work  clerk, 
(8)    recording   clerk,    (9)    mail  carrier,    (10)    tickler 
clerk,    (11)    time-and-cost  clerk,    (12)    stenographers, 
messengers,  etc. 

88.  Coordinating  function  of  production  clerk. — The 
great  problem  of  management  as  soon  as  the  process  of 

1  It  must  not  be  assumed,  however,  that  this  sequence  is  absolutely  necessary 
There  are  cases  where  several  of  these  functions  may  be  performed  at  the  same 
time;  that  is,  two  or  more  of  these  clerks  may  be  working  out  their  plans  at  the 
same  time. 


MODERN    AIDS    IN    MANAGEMENT 

specialization  has  taken  the  duties  of  one  man  or  of  one 
department  and  divided  them  among  several  men  or 
several  departments  is  to  bring  about  an  efficient  co- 
operation among  the  various  parts  which  have  thus  been 
separated.  When  an  enterprise  grows  to  anything  like 
normal  proportions,  it  is  necessary  to  separate  the  sales 
department  from  the  manufacturing  department.  No 
sooner  is  this  division  made,  however,  than  difficulties 
arise.  The  sales  department  sends  in  orders  and  ex- 
pects the  manufacturing  department  to  get  them  out  on 
scheduled  time.  As  every  business  man  knows,  these 
expectations  are  not  uniformly  realized,  and  friction 
arises  as  a  consequence.  A  reducing  of  this  friction 
and  the  bringing  about  of  a  greater  amount  of  coopera- 
tion between  these  two  departments  is  one  of  the  chief 
functions  of  the  production  clerk.  He  is  in  a  true  sense 
a  coordinator,  the  connecting  link  between  the  sales 
force  and  the  shop.  The  sales  department  depends 
upon  him  for  information  upon  which  to  base  its  prom- 
ises of  delivery.  He  is,  in  fact,  responsible  to  the  sales 
department  for  making  these  deliveries  at  the  time 
promised. 

89.  Setting  sales  delivery  dates. — To  set  his  dates, 
however,  the  production  clerk  must  have  information 
other  than  that  supplied  by  the  sales  department.  He, 
therefore,  first  consults  the  stores  clerk  and  learns  what 
manufactured  articles  are  required  for  stock.  With 
this  in  mind  he  then  sets  to  work  to  prepare  a  schedule, 
or,  as  it  is  called,  an  order  of  work.  This  order  con- 
tains a  list  of  all  orders  in  hand  for  each  department, 
arranged  according  to  their  relative  importance.  The 
relative  importance  of  an  order  is,  of  course,  deter- 
mined by  many  conditions,  but  in  general  the  classes 
into  which  most  of  the  manufacturing  orders  may  fall 


292  BUSINESS    MANAGEMENT 

are  as  follows:  (1)  the  emergency  class,  (2)  tools  or 
appliances,  (3)  manufacturing  orders,  (4)  orders  for 
stock  parts,  (5)  orders  for  stock  machines.  As  soon 
as  an  order  comes  to  the  production  clerk,  he  classifies 
it  under  one  of  the  above  classes.  It  need  hardly  be 
said  that  the  emergency  job  has  the  right  of  way 
through  the  factory  in  preference  to  any  other  job. 
But  the  production  clerk  must  first  consult  the  man- 
ager before  an  order  can  be  placed  under  the  emer- 
gency class.  An  order  in  class  2  would  have  preference 
over  any  of  the  others  which  follow  it,  for  such  an  order 
would  arise  only  when  the  work  under  way  was  being 
held  up  because  of  a  broken  tool  or  a  lack  of  appliances, 
etc.  Class  3  comprises  all  those  orders  for  products  not 
carried  in  stock  but  which  must  be  made  up  after  the 
customer's  order  has  been  received.  This  class  may  be 
further  subdivided  into  definitely  dated  orders  and  or- 
ders which  can  run  on  and  be  completed  at  the  manu- 
facturer's convenience. 

At  regular  intervals  whenever  the  need  arises  the 
production  clerk  revises  the  order  of  work  for  each  de- 
partment. 

90.  Further  duties  of  production  cleric. — The  sched- 
ule having  been  made  out,  the  production  clerk  must 
now  see  that  its  requirements  are  observed  in  the  draft- 
ing room,  in  the  planning  department  itself  and  in  the 
shop.  In  fact,  his  duties  now  are  largely  those  of 
"checking  up."  After  having  fixed  a  date  for  the  com- 
pletion of  the  job,  and  having  placed  it  on  the  shipping 
order,  he  files  the  memorandum  away  in  the  tickler. 
When  the  date  arrives  for  this  job  to  be  started,  his 
record  appears  automatically  and  he  checks  up  the 
drafting  department  by  it.  A  like  method  is  pursued 
in  checking  up  the  planning  and  the  delivery  of  ma- 


MODERN    AIDS    IN    MANAGEMENT  293 

terials.  The  tickler  is  to  the  production  clerk  what  a 
cab  window  is  to  an  engineer  on  a  locomotive ;  these  men 
must  be  constantly  looking  ahead  to  assure  themselves 
that  the  track  is  clear.  If  obstructions  appear  the  pro- 
duction clerk  must  arrange  to  have  them  removed  in 
plenty  of  time  so  as  not  to  interfere  with  the  general 
order  of  production. 

In  watching  the  progress  of  the  work  through  the 
shop  the  production  clerk  has  further  aids  to  help  him 
in  detecting  things  that  go  wrong  or  may  go  wrong. 
These  are  the  route  sheet,  the  progress  sheet,  and  the 
bulletin  board.  The  method  by  which  the  production 
clerk  checks  up  the  progress  of  the  work  in  the  shop  is 
interesting  because  it  differs  so  widely  from  the  prac- 
tice in  common  use.  His  mind  is  continually  on  the 
promise  he  has  made  to  the  sales  department  that  upon 
a  certain  date  a  certain  delivery  can  be  made.  He 
therefore  begins  his  daily  checking  up  of  the  progress 
of  work  not  by  first  looking  up  the  orders  due  to  be 
shipped  to-day,  or  those  overdue,  but  on  the  contrary 
he  starts  at  the  bottom  of  the  list  and  makes  sure  that 
everything  necessary  to  the  completion  of  the  order  just 
received  is  on  time  and  is  being  carried  out  to  the  let- 
ter. He  works  up  the  list  instead  of  down  and  the  last 
item  to  receive  his  attention  is  the  order  which  is  to  be 
shipped  to-day.  Mr.  H.  K.  Hathaway  in  the  Engi- 
neering Digest  for  July,  1912,  says: 

The  principal  cause  of  the  failure  to  complete  orders  on 
time  is  that  little  or  no  attention  is  given  them  on  this  score 
until  the  date  of  shipment  approaches.  In  machine  shops  a 
great  deal  of  time  is  ordinarily  wasted  in  getting  drawings 
and  patterns  made,  and  getting  materials  into  the  shop.  This 
time  cannot  be  made  up  after  the  work  is  started,  and  the 


294  BUSINESS    MANAGEMENT 

effort  to  do  so  results  in  confusion,  decreases  the  efficiency  of 
the  plant,  and  causes  more  or  less  friction  among  the  individu- 
als comprising  the  organization. 

91.  Qualifications   of   production   clerk. — The   pro- 
duction clerk  need  not  necessarily  be  a  man  trained  in 
the   technique    of    the    particular    business    which    he 
serves ;  however,  if  he  is  in  the  planning  department  of 
an  engineering  concern,  it  will  be  much  to  his  advan- 
tage, and  add  to  his  efficiency,  if  he  has  had  two  or 
three  years'  shop-practice  experience.     Of  course,  he 
must  be  familiar  with  the  processes  of  manufacturing, 
for  upon  them  depends  when  a  certain  operation  is  to 
be  done.    It  may  also  be  well  to  mention  here  that  the 
authority  of  the  production  clerk,  like  that  of  all  other 
members  of  this  department,  is  supreme  in  his  field. 
Even  the  manager  or  superintendent  must  respect  his 
authority.     But  when  he  has  planned  the  time  when 
certain  work  shall  be  done,  his  authority  ceases.    He  has 
no  right  to  say  how  or  what  shall  be  done  at  any 
time. 

92.  Route  clerk. — The  function  of  the  route  clerk  is 
to  show  how  a  thing  is  to  be  done.     As  soon  as  the 
drafting  department  has  shown  what  is  to  be  done,  the 
planning  of  the  work  proceeds  to  the  route  clerk.     It 
is  his  duty  to  take  the  information  which  comes  to  him 
in  the  form  of  drawings  and  bills  of  materials  and  plan 
how  the  product  shall  be  made.     He  must  be  able  to 
read  readily  the  drawings  from  the  drafting  depart- 
ment;   he    must    understand    machine    construction, 
so  as  to  analyze  it  and  put  in  writing  or  in  chart 
form    the    methods    which    show    how    the    manufac- 
ture is  to  be  carried  out  in  the  shop.    Furthermore,  he 
must  be  thoroughly  familiar  with  the  location  of  all 


MODERN    AIDS    IN    MANAGEMENT  295 

the  machines  and  their  capacity,  so  that  his  routing  of 
the  material  may  be  the  most  efficient  possible. 

93.  Method  of  work  for  the  route  clerk. — In  prepar- 
ing his  outline  or  his  diagram,  the  route  clerk  proceeds 
about  as  follows:  (1)  Having  analyzed  the  construc- 
tion of  the  machine  he  divides  it  up  into  groups  or  parts. 

(2)  He  studies  the  length  of  time  it  will  require  to 
get  the  castings  or  various  parts  that  require  special 
construction  and  the  amount  of  time  necessary  to  work 
up  the  various  parts  and  assemble  them.    This  enables 
him  to  decide  the  relative  importance  of  these  various 
groups  and  with  this  scale  or  order  of  importance  in 
mind  he  is  enabled  to  lay  out  the  first  draft  of  his  chart 
or  diagram,  which  embraces  only  the  various  groups. 

(3)  Each  group  is  now  considered  separately  and  a 
special  diagram  or  route  chart  is  made  for  it.     This 
will  include  in  their  order  of  relative  importance  all 
parts  that  go  into  the  order,  the  operations  to  be  per- 
formed upon  them,  the  machines  that  are  to  perform 
the  various  operations  and  the  material  required  for 
each  part  indicating  whether  it  is  to  be  purchased  from 
the  outside,  made  especially  for  the  job,  or  to  come  from 
stores.     (4)   He  applies  to  each  part  a  suitable  symbol. 
This  identifies  the  part  as  it  goes  through  the  shop, 
indicates  what  part  of  the  machine  it  goes  in  and  serves 
as  an  operation  order-number  and  an  index  to  the  in- 
struction card  which  is  made  out  for  the  several  opera- 
tions.    In  fact,  this  symbol  is  used  in  connection  with 
all  the  processes  involved  in  the  manufacture  and  plan- 
ning of  this  job,  at  length  serving  the  cost  keeper  in 
keeping  his  records  and  finally  becoming  a  basis  for  fil- 
ing any  data  which  may  pertain  to  the  piece  that  it  rep- 
resents.    (5)   Under  instructions  from  the  route  clerk 
another  clerk  prepares  route  sheets  and  progress  sheets 


296  BUSINESS    MANAGEMENT 

upon  which  the  movement  of  the  work  through  the 
shop  is  recorded.  In  fact,  it  is  here  that  the  various 
operation  orders,  inspection  orders,  stores  issues,  etc., 
originate. 

The  work  of  the  route  clerk  in  a  very  large  plant  be- 
comes very  involved,  and  requires  that  the  duties  of  the 
office  be  subdivided.  Thus  there  will  often  be  found 
one  expert  who  gives  his  whole  time  to  the  making  of 
route  charts  pertaining  to  the  assembling  alone.  Other 
experts  will  be  engaged  solely  in  laying  out  the  various 
machine  operations  for  the  various  parts;  others  again 
will  compute  the  quantities  of  material  required,  etc. 

94.  Qualifications  of  route  clerk. — When  any  man  is 
put  in  a  position  where  he  must  show  other  men  how 
things  are  to  be  done,  it  seems  unnecessary  to  mention 
that  such  a  person  should  be  endowed  with  much  tact. 
Especially  is  this  true  with  the  route  clerk  who  must 
consult  daily  with  the  foremen  in  the  shop,  seeking  their 
advice  as  to  the  best  method  to  be  followed  in  machining 
various  parts  and  assembling  them  into  groups,  etc. 
Even  in  the  planning  room  itself  he  must  be  in  contin- 
ual conference  with  the  various  clerks  of  the  depart- 
ment.    It  is  the  time-study  and  instruction-card  men 
who  can  tell  him  which  machines  and  what  laborer  can 
perform  the   work  in  the  most   economical  manner, 
whereas  the  balance-of-stores  clerk  can  inform  him  of 
the  condition  of  the  material  and  supplies. 

95.  Special-material     (foundry)     clerk.  —  Concerns 
that  do  a  variety  of  work  and  do  not  keep   all  of 
the   materials    on   hand    find    it    necessary   to    order 
the  special  material  from  the  outside.    In  cases  where 
this  is  done  continually,  a  clerk  is  provided  to  look 
after  the  special  work  in  the  planning  department. 
He  is  frequently  called  the  special-material  clerk,  but 


MODERN    AIDS    IN    MANAGEMENT  297 

in  machine  shops  where  the  special  material  referred  to 
is  largely  made  up  of  castings  which  must  be  obtained 
from  some  outside  foundry,  he  is  then  spoken  of  as  the 
foundry  clerk. 

The  duties  of  this  office  do  not  call  for  a  man  trained 
in  the  technique  of  the  manufacturing  business,  but  he 
must  be  a  man  who  is  wide-awake,  for  special  work  of 
this  kind,  especially  if  it  is  in  connection  with  the 
foundry,  calls  for  the  care  of  a  great  number  of  pat- 
terns. The  first  duty  then  of  the  "special-material" 
clerk  is  to  see  that  the  patterns  are  stored  and  labeled 
properly.  He  must  know  whether  they  are  in  storage 
or  whether  they  are  at  the  foundry.  The  records  will 
further  show  the  date  the  patterns  were  delivered  and 
the  date  they  were  returned.  His  next  general  duty  is 
to  make  out  detailed  orders  on  the  foundry,  which  or- 
der it  is  his  further  duty  to  follow  up  closely.  Each 
order,  therefore,  is  carefully  scheduled  showing  the 
amount  wanted,  when  wanted  and  the  number  in  each 
lot.  It  has  been  found  that  the  checking  up  of  these 
lots  when  delivered  from  the  foundry  is  a  very  impor- 
tant thing,  since  it  requires  the  foundry  to  deliver  the 
full  number  in  each  lot  to  complete  the  job  before  any 
order  is  begun. 

Any  one  familiar  with  the  common  shop  methods, 
where  special  materials  are  permitted  to  be  delivered  in 
broken  lots,  will  easily  see  where  a  clerk  of  this  de- 
scription will  soon  earn  his  salary.  Without  him  jobs 
are  started  when  only  a  part  of  the  material  is  on  hand, 
only  to  be  dropped  again  when  the  supplies  run  out. 
This  often  requires  the  machine  to  be  re-set  or  to  lie  idle 
for  a  long  time.  Although  this  position  is  purely  a 
clerical  one,  it  requires  much  energy,  because  the  clerk 
must  see  that  this  material  is  in  the  shop  on  time. 


298  BUSINESS    MANAGEMENT 

96.  Duties  of  balance-of-stores  clerk. — The  taking  of 
the  "stores  balance  sheets"  out  of  the  storeroom  and 
putting  them  into  the  planning  department  is  one  of 
the  unique  features  of  the  planning  department.  The 
clerk  who  has  charge  of  this  department  is  called  the 
balance-of-stores  clerk.  His  chief  duty  is  to  keep  a 
running  inventory  of  each  article  carried  in  stock.  His 
records  are  kept  on  what  are  known  as  "balance  sheets." 
The  chief  items  which  this  clerk  must  look  after  are  in- 
dicated on  the  sample  sheet  given  below  (Fig.  11).  In 
brief  they  are:  (1)  the  maximum  and  minimum  quan- 
tity, (2)  the  actual  quantity  carried  in  the  stores, 

(3)  the  quantity  on  order  but  not  yet  received  in  stores, 

(4)  the  quantity  required  for  orders  for  shipment  or 
manufacture  to  which  they  have  been  apportioned  but 
not  yet  issued,   (5)   the  quantity  available  for  future 
requirement. 

The  detailed  duties  of  the  balance-of-stores  clerk  will 
be  indicated  by  these  items  themselves.  He  will  have 
various  forms  to  make  out,  such  as  orders  on  the  store- 
room as  soon  as  the  route  clerk  hands  to  him  his  route 
chart  and  bill  of  materials.  Although  these  duties  are, 
largely  those  of  a  bookkeeper,  nevertheless  there  are 
certain  duties  to  perform,  such  as  checking  the  balance 
sheet  against  the  actual  stores,  that  call  for  considera- 
ble expertness  in  the  classification  of  the  various  orders 
according  to  their  symbols  since  the  stores  orders  are 
returned  to  him  at  the  end  of  each  day  by  the  storeroom 
clerk. 

Of  course  it  is  this  clerk's  duty  to  inform  the  produc- 
tion clerk  as  soon  as  stock  parts  are  running  low  and 
in  case  any  of  the  materials  are  not  available  at  the 
time  of  the  apportionment,  he  must  also  notify  the 
proper  authority  in  the  planning  department  when  the 


MODERN    AIDS    IN    MANAGEMENT 


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300  BUSINESS    MANAGEMENT 

material  does  arrive,  so  that  orders  may  be  issued  for 
the  work  to  be  started. 

97.  Time-study    clerk. — As    the    function    of   time 
studies  will  be  taken  up  later,  it  will  not  be  necessary 
to  say  more  here  about  the  duties  of  the  time  study 
clerk  than  to  mention  that  he  must  make  such  elemen- 
tary time  studies  as  are  necessary  to  determine  the  best 
methods  to  be  followed  in  the  performance  of  each  class 
of  work. 

98.  Instruction-card  clerk. — The  man  who  holds  this 
position  should  have  a  high  appreciation  of  the  impor- 
tance of  detail.    This  office  is  often  combined  with  that 
of  the  time  clerk  because  so  much  of  his  work  depends 
upon  knowledge  obtained  from  the  time  study.     His 
duties  are  clearly  indicated  by  his  title,  which  is  to  pre- 
pare instruction  cards  showing  the  method  to  be  fol- 
lowed in  performing  each  operation,  what  tools  to  be 
used,  in  what  sequence  the  operation  should  be  per- 
formed, the  time  taken  for  each  operation,  etc. 

99.  Route-file  clerk. — When  the  route  clerk  has  fin- 
ished his  sheet  and  diagram,  he  passes  them  over  to  the 
route-file  clerk  whose  duty  it  is  to  transfer  the  informa- 
tion from  these  route  sheets  to  suitable  sized  slips  of 
paper,  tags,  etc.,  whereby  the  route  clerk's  information 
can  be  carried  to  the  storeroom,  to  the  shop  and  to  the 
various  other  places  connected  with  the  performance  of 
the  work.    For  example,  there  will  be  an  order  on  the 
storeroom  for  material  from  which  the  article  is  to  be 
made,  a  tag  to  be  attached  to  the  lot  or  part,  an  order 
for  each  operation,  for  the  inspection  that  takes  place  at 
the  start  of  each  operation  and  for  the  inspection  of  the 
work  when  it  is  completed  on  the  lot  and  for  moving  the 
materials  from  one  place  to  another. 

These  forms  are  made  out  for  each  unit  into  which 


MODERN    AIDS    IN    MANAGEMENT  301 

the  work  has  been  divided  by  the  route  clerk.  An  en- 
velope sheet  bearing  its  appropriate  symbol  whereby 
it  can  be  easily  recognized  is  then  prepared.  Into  this 
are  placed  the  operation  orders,  etc.,  pertaining  to  that 
unit.  The  envelope  sheet  is  then  filed  for  the  record 
clerk's  use  whose  work  begins  as  soon  as  the  work  on 
this  job  starts. 

100.  Order-of-work  clerk. — Although  the  route  clerk 
has  already  shown  how  and  where  the  work  is  to  be 
done,  nevertheless  it  requires  another  man  to  adminis- 
ter the  order  of  work  to  the  employes  in  the  shop,  and 
the  medium  through  which  he  does  this  is  the  bulletin 
board. 

As  soon  as  the  job  is  ready  to  put  into  the  shop 
the  record  file  is  taken  from  its  place  and  the  various 
operation  orders  removed  and  put  into  possession  of 
the  order-of-work  clerk.  Being  thoroughly  familiar 
with  the  work  of  the  plant,  he  knows  the  capacity  of 
both  men  and  machines.  He  sees  that  the  various  jobs 
ahead  of  each  machine  are  taken  up  and  performed  in 
accordance  with  their  relative  importance.  In  decid- 
ing this  he  is,  of  course,  guided  by  the  schedule  fur- 
nished him  by  the  production  clerk,  already  mentioned 
above.  On  the  bulletin  board  will  therefore  be  dis- 
played each  job  and  the  machine  to  which  it  is  assigned. 
Furthermore,  it  can  be  seen  at  once  whether  the  job  is 
being  worked  upon  or  whether  it  is  to  be  done  next,  as 
soon  as  the  job  under  way  has  been  finished,  or  per- 
haps it  may  stand  third,  fourth,  or  fifth  on  the  list. 

This  clerk,  besides  having  a  good  memory,  must  also 
be  endowed  with  considerable  tact,  since  much  of  his  in- 
formation must  come  from  the  various  foremen  and  in- 
spectors in  the  shop.  In  this  way  he  is  continually 
posted  as  to  the  best  workmen  and  the  capabilities  of 


302  BUSINESS    MANAGEMENT 

the  various  machines,  as  well  as  the  grades  of  work  each 
is  capable  of  performing. 

101.  The  eye  of  the  superintendent. — Without  going 
into  the  shop,  therefore,  the  superintendent  can  see  in 
advance  what  machine  and  what  men  are  occupied.    If 
for  any  reason  the  order-of-work  clerk  does  not  find 
work  for  any  of  the  men,  he  must  notify  the  superin- 
tendent or  the  proper  person  at  once.    Likewise  it  will 
be  his  duty  to  inform  the  proper  authority  in  case  there 
are  not  enough  men  to  handle  the  work  already  on  the 
floor  or  planned  for  during  some  particular  period. 
The  bulletin  board  referred  to  is  the  most  important  de- 
vice in  the  planning  department,  but  it  will  be  described 
later  when  the  routing  of  an  order  through  the  shop  is 
taken  up. 

The  order-of-work  clerk  is  a  very  active  person.  He 
must  continually  and  systematically  go  over  his  bulletin 
board.  He  must  permit  neither  man  nor  machine  to 
run  short  of  work  if  it  can  be  provided  for,  nor  must 
he  permit  an  important  job  to  stand  waiting  while  one 
that  is  less  important  is  being  worked  upon.  The  great 
economy  effected  by  the  bulletin  board  is  the  saving 
of  the  lost  time  between  the  completion  of  one  job  and 
the  starting  of  the  next,  the  rule  being  to  have  prepara- 
tions made  in  the  plant  for  two  or  more  jobs  ahead  for 
each  workman. 

102.  The  recording  clerk. — On  the  route  sheet  each 
step  in  the  progress  of  the  work  to  be  done  on  a  lot  or 
part  is  indicated,  so  that  what  has  been  done  and  what 
remains  to  be  done  is  always  evident.    Each  step,  there- 
fore, is  clearly  indicated  and  the  time  indicated  when 
it  is  to  be  taken.     Along  with  this  information  which 
has  been  filed  in  the  envelope  sheet  by  the  route-file 
clerk  also  comes  other  important   information,   such 


MODERN    AIDS    IN    MANAGEMENT  303 

as  tool  list,  instruction  cards,  designs,  etc.  Upon  the 
information  provided  by  these  things,  the  record  clerk 
performs  his  functions  which  are  mainly  to  record  the 
progress  of  the  work,  to  issue  and  receive  operation  or- 
ders, inspection  orders,  move  orders,  etc.,  at  each  phase 
in  the  progress  of  the  work. 

103.  The  cost  clerk. — This  clerk  is  held  responsible 
for  all  cost  records.  A  system  of  management  which 
employs  a  planning  department  uses  its  cost  records  for 
two  purposes :  ( 1 )  for  keeping  the  records  of  the  work 
which  has  been  done  over  various  periods  of  the  past; 
(2)  to  show  the  condition  of  the  work  at  any  particular 
period  when  called  for  by  the  manager.  The  operation 
orders  and  other  slips  which  are  used  in  the  adminis- 
tration of  the  operations  in  the  shop,  etc.,  at  length 
become  the  basis  on  which  the  record  clerk  rests  his 
work.  As  a  job  is  finished,  these  slips  containing  the 
workingman's  time,  his  rate  of  pay,  his  bonus,  etc.,  come 
directly  to  the  cost  clerk. 

Thus  all  cost  sheets  are  kept  up  to  date.  All  labor 
and  other  charges  to  the  job  at  the  close  of  work  each 
night  must  be  posted  on  sheets  up  to  and  including  the 
progress  of  the  day  previous.  The  division  of  the  cost 
clerk's  work,  mentioned  above,  forms  the  basis  for  a 
further  duty,  namely,  managing  the  cost  files.  These 
files  are  of  two  kinds:  (1)  the  live  file;  (2)  the  dead 
file.  Only  work  in  process  must  remain  in  the  live  file. 
When  work  is  completed,  ready  to  be  shipped,  or  the 
job  otherwise  closed,  the  slips  are  removed  from  the 
file  as  soon  as  the  cost  clerk  is  satisfied  that  all  charges 
that  belong  to  them  are  posted.  They  are  then  put  in 
the  dead  files  and  stand  as  records  for  future  refer- 
ence. 

The  cost  clerk  generally  has  an  assistant  who  figures 


304  BUSINESS    MANAGEMENT 

up  the  pay  roll  and  makes  out  the  bonus  rewards,  etc. 
The  cost  records  as  kept  under  a  system  of  this  kind 
are  very  simple.  All  materials,  requisitions  from  stores 
or  from  outside  places,  all  time  expended  in  the  shop 
either  as  expense,  or  as  work  in  process,  will  be  posted 
on  the  cost  sheet.  A  second  sheet,  known  as  the  distri- 
bution sheet,  will  then  show  all  the  time  as  it  is  distrib- 
uted daily.  However,  to  describe  the  full  duties  of  the 
cost  clerk  would  take  us  too  far  into  the  field  of  ac- 
counting. A  brief  summary  of  the  duties  of  the  cost 
clerk  as  laid  down  in  the  book  of  instructions  of  one 
large  company  will  suffice  to  show  the  cost  clerk's  du- 
ties in  general: 

The  cost  clerk  should  make  it  a  point  to  daily  close  all  cost 
sheets  for  work  completed,  after  being  sure  that  all  the 
charges  for  these  jobs  have  been  received  and  posted  by  him. 
This  cost  includes  material,  labor  and  sundries,  which  totaled 
represent  time  cost.  To  this  opposite  expense  must  be  added 
the  prevailing  overhead  burden  per  hour.  This  burden,  added 
to  the  time  costs,  represents  the  total  manufacturing  costs. 
Differential  burden  or  machine  hour  is  posted  in  each  labor 
operation  column.  Each  month  the  cost  clerk  must  make  a 
report  to  the  general  manager. 

104.  Time-keeper. — The  first  duty  of  the  time  clerk 
is  to  regulate  all  the  clocks  in  the  shop.  The  time  clocks 
on  which  the  men  register  in  and  out,  he  is  required  to 
watch  closely.  Each  day  the  clock  cards  are  checked  up 
and  totaled,  the  total  being  checked  against  the  indi- 
vidual time  card  for  each  man  and  turned  in  by  him  or 
the  gang  boss  or  foreman  each  day.  This  insures  the 
proper  distribution  of  the  exact  amount  of  time  which 
is  shown  by  the  time-clock  card  and  for  which  the  men 
will  be  paid.  This  time  is  totaled  daily  and  distributed 


MODERN    AIDS    IN    MANAGEMENT  305 

upon  the  distribution  sheet  mentioned  above  in  connec- 
tion with  the  cost  clerk's  duties.  This,  of  course,  must 
agree  with  the  cost  clerk's  entry. 

105.  Planning  introduces  no  new  duties. — It  is  not 
intended  in  the  foregoing  description  of  the  various  du- 
ties performed  in  the  planning  department,  to  cover  all 
the  ground  that  might  possibly  be  included  in  a  plan- 
ning department.  The  description,  however,  will  serve 
to  show  that  there  are  no  new  duties  or  functions  car- 
ried out  in  the  planning  department  which  have  not 
previously  been  carried  on  in  the  shop.  Those  duties 
which  could  be  easily  separated  from  the  purely  opera- 
tive functions  have  been  taken  and  put  by  themselves. 
One  important  feature  of  this  form  of  management  is 
that  the  workmen  have  absolutely  no  clerical  work 
whatsoever  to  do  and  it  is  not  necessary  that  they  touch 
a  pencil  or  time  stamp  from  the  time  they  arrive  at 
work  in  the  morning  until  they  quit  at  night.  As  L.  M. 
Gilbreth  says  in  a  paper  in  Industrial  Engineering: 

Master  planning  is  the  last  study.  The  best  planner  is  he 
who — other  things  being  equal — is  the  most  ingenious,  the 
most  experienced  and  the  best  observer. 

The  art  of  observing  is  founded  upon  a  study  of  the  mental 
element.  In  order  that  planning  may  be  done  best,  the  entire 
sequence  of  operations  must  be  laid  out  previous  to  starting 
the  work,  so  that  the  ideas  and  values  of  every  element  of 
every  subdivision  of  the  process  of  work  may  be  corrected  to 
act  most  efficiently  in  relation  with  each  and  all  of  the  subse- 
quent parts  and  events  that  are  to  follow.  This  planning  for- 
ward and  backward  demands  an  equipment  of  time-study  and 
motion-study  records  such  as  can  be  used  economically  only 
when  all  the  planning  is  done  in  one  place,  with  one  set  of 
records.  The  planner  must  be  able  to  see  and  control  the 
whole  problem  in  all  of  its  aspects. 
11—20 


306  BUSINESS    MANAGEMENT 

106.  Other  functions  associated  with  planning  de- 
partment.— The  duties  of  the  disciplinarian,  gang  boss, 
speed  boss,  repair  boss  and  inspector  have  not  been 
touched  upon  here.  .  The  quotation  from  Mr.  Taylor,  in 
section  70,  was  considered  sufficient  to  cover  the  duties  of 
these  men  who  are  commonly  spoken  of  as  functional 
foremen.  Although  these  men  may  be  put  into  the 
planning  department,  they  are  more  closely  allied  with 
the  "performing  department."  The  planning  depart- 
ment then,  in  contrast  with  the  performing  department, 
classifies  its  work  in  seven  general  functions,  namely, 
(1)  what  is  to  be  done,  (2)  the  sequence  in  which  it  is 
to  be  done,  (3)  the  method  by  which  it  shall  be  done, 
(4)  which  men  shall  do  it,  (5)  the  time  that  it  shall 
take,  (6)  the  exact  quality  of  product,  (7)  the  amount 
of  additional  pay  that  shall  be  given  for  doing  it.  The 
workers  are  given  standard  tasks  to  do.  They  have 
teachers  to  help  them  and  they  are  given  a  standard 
wage  according  to  the  performance  as  a  reward.  The 
management,  knowing  what  the  planning  department 
is  expected  to  do,  is  also  in  full  possession  of  just  what 
the  men  in  the  shop  are  expected  to  do.  The  workers 
are  expected :  ( 1 )  to  give  their  cooperation  in  carrying 
out  prescribed  work,  method  and  quality;  (2)  to  exer- 
cise their  ingenuity  in  making  improvements  after  they 
have  learned  the  standard  prescribed  practice;  (3)  to 
fit  themselves  for  higher  pay  and  promotion. 


CHAPTER  VI 

STANDARDIZATION    AND    EQUIPMENT 

107.  Management  a  process  of  applying  correct 
standards. — A  sound  judgment  is  the  prime  mental  at- 
tribute of  a  good  manager.  When  a  manager  fails  he 
is  criticised  for  not  using  good  judgment.  But  to  ac- 
cuse a  manager  of  exercising  poor  judgment  is  only  to 
say  that  he  has  used  wrong  standards  in  drawing  his 
conclusions.  Judgments  are  the  results  of  comparisons. 
When  comparisons  are  made  we  consciously  or  uncon- 
sciously use  one  of  the  things  compared  as  a  standard 
by  which  the  other  thing  is  measured.  When  the  moon 
rises  from  behind  the  hills  we  say  it  is  as  large  as  a 
wagon  wheel.  When  the  moon  rises  overhead  then  we 
say  it  is  as  large  as  a  plate.  In  these  cases  we  have 
unconsciously  compared  the  moon  with  the  objects 
standing  on  the  horizon  and  as  the  moon  moves  from 
one  position  to  another  our  judgment  varies. 

A  great  economist  once  said  that  all  economic  activ- 
ity in  its  last  analysis  resolved  itself  into  the  simple  pro- 
cess of  moving  matter.    It  might  with  truth  also  be  said  / 
that  the  problem  of  management  resolves  itself  into  a  / 
series    of  measurements.     Every   manager   has    some' 
standard.    The  difference  between  a  progressive  and  a 
non-progressive  manager  is  largely  determined  by  their 
attitudes  toward  the  standards  which  they  use.     The 
one  having  decided  that  a  certain  type  of  machine  or  a 
certain  kind  of.  man  or  a  method  for  performing  an 
operation  is  the  correct  one  rests  contented  to  use  these 
as  standards  year  after  year;  the  other  is  continually 

307 


308  BUSINESS    MANAGEMENT 

on  the  lookout  for  improvements  in  his  machines,  men 
and  methods,  and  frequently  changes  his  standards  in 
order  that  he  may  judge  of  his  efficiency  under  new 
conditions. 

When  the  Carnegie  Steel  Company  entered  the  com- 
petitive fight  which  finally  resulted  in  the  formation  of 
the  United  States  Steel  Corporation,  it  was  truly  a 
modern  "battle  of  the  standards."  Mr.  Carnegie  proved 
himself  to  be  the  most  progressive  manager  of  the  day 
because  of  his  attitude  toward  standardization.  While 
other  companies  were  judging  their  efficiency  by  the 
capacity  of  old  equipment,  Mr.  Carnegie  was  equipping 
his  plant  with  new  and  up-to-date  machinery.  His 
standards  were  of  the  twentieth  century,  his  competi- 
tors' standards  were  those  of  the  nineteenth.  Since  Mr. 
Carnegie's  success  few  men  have  questioned  the  neces- 
sity of  continually  watching  their  machine  standards 
in  determining  the  efficiency  of  their  output.  The  gen- 
eral acceptance  of  this  principle  was  a  great  step  for- 
ward. Yet  the  problem  connected  with  the  determina- 
tion of  machine  standards  is  a  comparatively  simple  one 
when  compared  with  the  determination  of  those  stand- 
ards which  are  connected  with  men  and  become  the 
basis  of  judging  labor  efficiencies. 

To  establish  rational-work  standards  for  men  requires  in- 
deed motion  studies  and  time  studies  of  all  operations,  but  it 
requires  in  addition  all  the  skill  of  a  planning  manager,  all 
the  skill  of  the  physician,  of  the  humanitarian,  of  the  psychol- 
ogist, of  the  physiologist ;  it  requires  infinite  knowledge,  di- 
rected, guided  and  restrained  by  hope,  faith,  and  compassion.1 

108.  Standards  of  labor  efficiency.^- The  difficulties 
of  the  problem,  however,  should  not  deter  any  manager 

1  Harrington  Emerson  in  "Twelve  Principles  of  Efficiency,"  page  275. 


STANDARDIZATION    AND    EQUIPMENT       309 

from  beginning  to  study  the  conditions  surrounding  his 
workingmen.  The  next  great  step  forward  in  the  or- 
ganization of  our  industry  will  be  along  the  lines  of 
finding  and  adopting  the  true  standard  conditions  under 
which  men  shall  labor.  Perhaps  when  the  next  great 
competitive  battle  is  fought  the  manager  who  can  meas- 
ure his  fighting  strength  in  terms  of  labor  efficiency  will 
inscribe  his  name  higher  on  the  list  than  that  of  any  of 
the  great  captains  of  industry  of  the  past.  Such  a 
man  will  have  standardized  his  conditions  and  will  know 
that  he  will  be  wasting  less  time,  squandering  less  ef- 
fort and  spending  less  money  than  any  of  his  competi- 
tors. 

As  is  mentioned  above,  every  manager  has  standards 
of  some  kind.  Evidences  of  these  standards  are  seen  in 
written  specifications  in  the  purchase  of  materials, 
goods,  etc.  But  as  we  approach  the  operations  which 
the  men  perform  and  the  conditions  under  which  they 
work  these  records  grow  rarer  and  rarer.  Seldom  do 
we  find  written  specifications  covering  what  might  be 
known  in  a  given  concern  as  standard  practice.  But 
when  it  is  realized  that  standard  operations  and  stand- 
ard efficiency  are  as  valuable  to  a  firm  as  standard  ma- 
terials and  standard  machines,  then  will  the  true  func- 
tions of  the  planning  department  and  its  record  of 
standard  practice  be  seen. 

Perhaps  the  commonest  objection  to  adopting  stand- 
ards, aside  from  the  difficulty  of  obtaining  them  and 
keeping  a  permanent  record,  is  that  it  will  destroy  the 
initiative  and  incentive  of  the  workingman.  Such  per- 
sons seem  to  reason  from  the  position  that  when  a 
standard  is  once  adopted  it  is  to  remain  forever.  But 
standards  are  ever  changing  and  that  is  the  reason  man- 
agers are  needed.  No  sensible  manager  of  to-day  will 


310  BUSINESS    MANAGEMENT 

ignore  the  suggestions  of  his  men  which  may  improve 
his  standard  practice.  All  that  such  managers  require 
is  that  the  man  show  himself  capable  first  of  accom- 
plishing work  according  to  the  standards  that  are  set 
by  normal  conditions.  Absolute  standards  can  never 
be  set  in  business ;  therefore,  there  will  always  be  plenty 
of  opportunities  for  the  exercise  of  the  workman's  in- 
genuity. 

109.  Cautions  in  adopting  business  standards. — Per- 
haps some  caution,  however,  might  be  suggested  regard- 
ing the  establishment  of  standards.  In  business,  that 
particular  standard  is  desired  which  will  produce  the 
largest  output  with  the  least  effort  or  cost  under  the 
conditions.  One  of  these  conditions  is  the  human  ele- 
ment. In  a  shop  employing  one  hundred  men,  one  man 
might  be  found  who  would  be  able  to  do  a  given  piece  of 
work  three  times  as  quickly  as  anyone  else.  If  this  man's 
accomplishment  were  taken  as  the  standard  and  the 
other  men  forced  to  meet  it,  the  output  in  a  very  short 
time  would  fall  appreciably.  The  men  working  beyond 
their  strength  would  soon  show  the  result  in  their  lag- 
ging energy.  The  excellent  man's  accomplishment 
should  not  be  the  standard  for  the  good  man's  effort, 
because  it  is  the  latter  upon  whom  the  management  must 
depend  in  the  long  run  for  its  steady  output.  Normal 
conditions  and  not  "spurt"  conditions  should  control. 
The  schedule  should  be  made  so  as  to  embrace  the  gen- 
eral run  of  men,  but  permit  a  place  for  the  unusual  as 
well  as  the  mediocre  man.  As  Mr.  Emerson  says,  there 
are  places  where  the  poor  men  may  fit  even  as  the  tame 
goose  plucked  for  his  feathers  and  prepared  for  the  feast 
shows  one  hundred  per  cent,  efficiency,  whereas  a  thin 
wild  goose  is  far  below  par;  but  the  efficiency  would  be 
reversed  if  flight  instead  of  diet  were  being  considered. 


STANDARDIZATION    AND    EQUIPMENT        311 

The  schedule  must  fit  the  man  and  the  man  must  fit  the 
schedule.  There  is  no  such  thing  as  an  universal 
schedule. 

110.  Standard  specifications. — Among  the  first  de- 
partments into  which  definite  standards  were  introduced 
were  the  purchasing  and  contracting  departments. 
These  have  proved  their  worth  to  such  an  extent  that 
every  business  is  familiar  with  the  practice.  The  ex- 
tent to  which  specifications  have  been  standardized  is 
remarkable  and  significant  of  what  might  be  done  in 
other  fields. 

Too  much  emphasis  cannot  be  placed  upon  the  fact 
that  standardizing  is  a  continuing  process.  No  speci- 
fication is  necessarily  perfect  and  modifications  and  re- 
modifications  must  be  made  to  meet  constantly  changing 
trade  conditions  and  to  correct  fundamental  defects 
which  only  experience  will  develop. 

The  quantity  of  each  kind  of  material  to  keep  on  hand 
and  the  amount  to  get  when  ordering  is  the  second  step 
in  standardizing  materials.  The  object  in  view  is  to 
prevent  the  annoyance  of  running  short  (so  common 
in  all  unorganized  stock  rooms),  to  purchase  sufficient 
quantities,  to  secure  good  prices  and  still  not  to  lock 
up  an  unnecessary  amount  of  capital.  This  is  done  by 
establishing  a  minimum  below  which  the  stock  must 
never  be  allowed  to  fall.  The  minimum  depends  upon1 
how  long  it  takes  to  get  supplies  delivered,  how  fast 
the  material  is  usually  used  up,  and  how  rapidly  it 
deteriorates.  Sometimes  a  secondary  or  emergency 
minimum  is  added  to  call  special  attention  to  the  fact 
if  the  new  supplies  have  not  come  in  before  a  dangerous 
point  is  reached.  The  amount  to  purchase  depends  upon 
the  saving  to  be  gained  through  quantity  buying,  the 
room  and  help  available  for  handling,  the  capital  tied 


312  BUSINESS    MANAGEMENT 

up,  the  seasonal  variation  in  prices  and  the  amount  that 
is  used.  These  figures  are  generally  placed  directly 
on  the  material  ledger  accounts  so  that  the  stock  clerk 
can  see  instantly  when  he  is  running  low  and  replenish 
in  time. 

111.  Monetary  savings  due  to  standard  materials.— 
One  of  the  big  advantages  of  standard  materials  is  the 
direct  monetary  saving.     An  examination  of  the  sup- 
plies used  will  usually  show  a  surprising  variety  in  the 
kinds  and  grades  of  the  same  thing.    The  Commission 
on  Standardization  of  the  City  of  New  York  found  that 
the  city  had  25  different  standards  for  horses  and  nu- 
merous standards  for  coal.    They  have  been  able  to  clas- 
sify all  the  city  requirements  under  seven  grades  for 
horses  and  one  specification  for  coal.    So  far,  the  com- 
mission's work  has  covered  only  one  fourth  of  the  city 
purchases,  but  if  the  5  per  cent,  saving  effected  thus  far 
can  be  applied  to  the  whole  $22,000,000  which  the  city 
spends  annually  for  supplies,  the  saving  will  be  over  a 
million  dollars  a  year. 

Since  the  introduction  of  standard  materials  is  not 
hampered  by  existing  conditions — new  materials  of  one 
kind  or  another  must  be  ordered  from  time  to  time — it 
provides  the  ideal  way  to  start  standardizing. 

112.  Standard  office  material. — Office  material  is  a 
particularly  good  field  for  standardizing  since  differ- 
ences in  stationery  rarely  have  any  more  logical  basis 
than  chance.    For  instance,  many  kinds  of  carbon  paper, 
of  typewriter  ribbons,  pencils,  pens   and  erasers   are 
found  in  every    office    together    with   many    different 
shapes  and  sizes  of  account  books  and  forms,  etc. 

113.  Example  of  standard  drawings. — The  multiple 
system  of  standard  size  drawings  which  is  universal  in 
large  drafting  offices  can  be  used  to  advantage  in  office 


STANDARDIZATION    AND    EQUIPMENT        313 

Work.  This  system  recognizes  the  fact  that  all  drawings 
cannot  be  made  on  one  size  of  paper  even  though  such 
a  result  is  very  desirable.  It  therefore  adopts  a  given 
large  size  as  standard,  which  is  divided  into  halves,  quar- 
ters and  eighths  for  smaller  sizes.  By  this  arrangement 
all  drawings  can  be  filed  in  one  size  cabinet  by  dividing 
the  drawers  to  correspond  with  the  smaller  drawings. 
As  the  standard  size  sheet  is  always  selected,  the  paper 
can  be  cut  to  the  best  advantage  and  without  waste. 
For  instance,  if  the  standard  or  A  sheet  is  23  by  36, 
which  is  a  stock  paper  size,  the  four  sizes  allowed  in  the 
office  would  be: 

Full  sheet  A— 23x36. 

Half  sheet  B— 23x18. 

Quarter  sheet  C— 11^x18. 

Eighth  sheet  D— llVoxO. 

The  multiple  system  has  also  been  adapted  to  ship- 
ping, especially  in  seed  houses  where  the  packages  for 
different  quantities  are  all  multiples  of  each  other. 
This  permits  all  orders  to  be  packed  in  one  size  box; 
and  orders  too  large  for  one  box  can  be  packed  in  sev- 
eral separate  boxes  and  the  boxes  nailed  together  with 
strips  on  the  outside.  This  saves  storage  space  in  the 
shipping  room  and  greatly  facilitates  the  routine. 

114.  Standard  equipment. — Better  all  second-class 
machines  than  many  first  with  a  few  second  and  third 
class;  because  the  operators  on  the  first-class  machines 
will  regulate  their  speed  to  that  of  the  workmen  on  the 
second  and  third-class  machines.  Thus  the  efficiency  of 
the  first-class  machines  is  always  lowered  to  that  of 
the  poorer  ones. 

All  machinery,  however  carefully  watched,  wears  out 
and  breaks  down.  To  avoid  costly  delays  it  is  there- 
fore necessary  to  carry  repair  parts  in  stock.  If  one 


314  BUSINESS    MANAGEMENT 

type  of  machine  is  used,  one  set  of  parts  will  care  for 
all  breakages.  The  probabilities  are  against  two  ma- 
chines breaking  down  in  the  same  way  at  the  same 
time.  If  two  kinds  of  machines  are  used,  two  sets  of 
parts  become  necessary  because  the  parts  of  one  will 
not  interchange  with  the  parts  of  the  other.  If  many 
makes  are  used,  many  sets  of  repair  parts  are  necessary. 
Unproductive  capital  is  locked  up  in  these  parts,  in- 
creasing the  indirect  expense.  Machinery  manufac- 
turers are  waking  up  to  the  importance  of  this  matter 
of  repair  parts,  so  that  it  is  now  possible  to  get  a  com- 
plete range  of  tools,  the  parts  of  which  are  more  or 
less  interchangeable ;  and  fewer  parts  consequently  need 
to  be  carried  in  stock.  It  is  also  good  practice  to  select 
the  entire  equipment  from  one  or  two  firms,  provided 
the  purchaser  does  not  become  too  dependent  upon  one 
source.  The  inherent  advantage  of  the  individual  ma- 
chines of  many  different  firms  are  often  more  than  offset 
by  a  gain  in  uniformity.  Where  a  firm  makes  much  of 
its  own  machinery  it  is  advisable  to  carry  out  the  same 
idea. 

115.  The  principle  as  applied  to  delivery  systems. — 
That  the  tendency  with  large  companies  is  toward  a 
standardization  of  their  delivery  and  office  equipment 
no  less  than  their  production  machinery  is  shown  by  the 
following  advertisements : 

Another  big  order  for trucks  was  placed  yesterday — 

an  order  for  ten  from  the  Long  Island  Express  Company. 
This  concern  already  has  ten  —  -  trucks,  purchased  on  Jan- 
uary 31,  1911.  The  re-order  makes  twenty  of  them,  all  told— 
$72,000  in  —  -  trucks. 

Rather  significant  is  this  order.  When  a  big  company 
invests  as  much  money  as  this  in  one  manufacture  of  truck, 
its  own  answer  to  the  motor  truck  question  is  clear. 


STANDARDIZATION    AND    EQUIPMENT        315 

But  consider  for  a  moment  what  other  express  companies 
have  in  the  way  of  -  -  trucks :  American  Express  Company, 
27;  Westcott  Express  Company,  11;  Adams  Express  Com- 
pany, 4. 

These  three  express  companies  have  an  investment  in  

trucks  of  $161,000.  Four  companies,  all  told,  total  $233,600 

in trucks — an  investment  that  is  greater  than  the  capital 

of  many  motor  truck  manufacturers. 

116.  Interchangeable  parts. — More  important  than 
the  number  of  designs  is  the  matter  of  standard  or  inter- 
changeable parts  both  in  the  same  machine  and  between 
an  entire  line  of  machines.  Mr.  C.  U.  Carpenter  in  his 
"Profit  Making  Management"  summarizes  as  follows: 

The  great  advantage  of  standardized  products  is,  of  course, 
apparent.  It  means  cheapening  production  through  duplica- 
tion of  parts  and  ease  of  handling;  increase  of  output  per 
square  foot  of  floor  area  through  quicker  production,  and  the 
consequent  reduction  in  indirect  expense  per  piece;  the  possi- 
bility of  building  for  stock  in  slack  times  and  so  keeping  up 
the  factory  output;  quicker  deliveries  and  more  orders,  better 
satisfied  customers,  and  a  more  rapid  turning  over  of  working 
capital. 

The  differences  in  legs,  screws,  pins  and  other  unim- 
portant parts  of  machines  are  largely  the  result  of  the 
individual  designer's  whim,  and  should  be  made  uniform. 
The  Engineering  Standards  Committee  of  the  Institu- 
tion of  Civil  Engineers  discovered  in  their  investigations 
that  a  large  part  of  the  differences  in  British  rolled 
sections  had  been  deliberately  introduced  by  the  manu- 
facturers, so  that  duplicates  and  repair  parts  must  be 
ordered  from  the  original  maker;  and  that,  in  place  of 
having  the  desired  result,  this  action,  through  the  need 
of  special  tools  and  dies  and  the  expense  of  changing 
rolls,  had  so  increased  production  costs  that  the  Ameri- 


316  BUSINESS    MANAGEMENT 

can  and  German  plants  were  gaining  the  trade  by  under- 
selling. Where  small  parts  are  standardized,  their 
continual  re-design  is  eliminated  so  that  the  designer 
can  concentrate  his  skill  on  the  essential  elements  of 
the  problem. 

The  importance  of  interchangeable  parts  was  first 
enunciated  by  Joseph  Whitmore  in  his  paper  on  "A 
Uniform  System  of  Screw  Thread"  read  before  the 
British  Institution  of  Civil  Engineers  in  1841.  It  was 
first  generally  adopted  by  American  watch  manufac- 
turers. During  the  middle  of  the  last  century  these 
manufacturers  made  a  lasting  impression  on  foreign 
engineers  by  dismantling  two  going  watches,  mixing  the 
parts  with  similar  unused  stock  parts  and  then  without 
any  fitting  re-assembling  a  going  watch  from  one  of 
each  part  selected  by  the  visitors.  Similar  astonish- 
ment has  been  occasioned  in  more  recent  times  by  our 
automobile  makers,  performing  the  same  severe  test, 
dismantling  a  car  after  a  long  run,  mixing  the  parts  with 
similar  stock  parts  and  after  re-assembling  making  an- 
other long  run. 

117.  Use  of  "limiting  dimensions" — To   insure  the 
fitting  together  without  any  filing  of  parts  which  have 
been  made  by  different  workmen,  the  system  of  "limit- 
ing dimensions"  has  been  developed.    This  system  pro- 
vides that  important  distances  shall  be  so  marked  as 
to  the  maximum  variation  allowable  if  the  part  is  to 
match  with  its  neighbors.     The  workman  thus  knows 
where  special  accuracy  is  required  and  is  supplied  with 
limiting  gauges  for  testing  his  work. 

118.  Use  of  symbols. — Convenience  is  promoted  by 
the  use  of  symbols.     A  good  symbol  system  must  be: 
(1)  unmistakable;  (2)  easy  to  remember;  (3)  brief. 

The  usual  terminology  of  tools  and  parts  is  very 


STANDARDIZATION    AND    EQUIPMENT        317 

loose.  The  meaning  in  which  words  are  used  differs 
widely  among  different  firms,  and  the  same  word  is  often 
used  for  several  ideas,  it  being  necessary  to  determine 
which  one  is  intended  by  the  context.  The  first  step 
in  symbolizing,  therefore,  is  to  adopt  definite  names  in 
accordance  with  current  commercial  usage  as  well  as 
with  dictionary  definitions.  As  one  of  the  chief  pur- 
poses of  a  symbol  is  to  correct  the  slackness  of  common 
usage,  it  is  essential  that  each  symbol  be  applicable  to 
only  one  definite  thing  or  idea. 

119.  Constructing  a  system  of  symbols. — A  symbol 
consists  of  two  things,  a  sign  and  a  position.  The  sign 
may  be  a  letter,  a  figure,  some  borrowed  character,  such 
as  a  Greek  letter  or  something  manufactured  to  serve 
the  purpose.  Where  there  are  enough  signs  to  indicate 
all  the  classes,  position  is  unnecessary.  This  is  the  case 
with  the  chemical  symbols.  "N"  stands  for  nitrogen 
whether  it  is  at  the  beginning  as  in  NH4C1  (Ammo- 
nium chloride),  in  the  middle  as  in  NaNO3  (Sodium 
nitrate)  or  at  the  end.  Where,  however,  there  are  not 
enough  signs  to  go  around,  significance  of  position  is 
added.  The  digit  6  means  sixty  in  the  second  place 
(60)  and  six  hundred  in  the  third  (600) .  Where  letter 
symbols  are  united  to  form  groups,  combinations  of  cap- 
ital and  small  letters  as  in  the  chemical  symbols  are  pref- 
erable to  all  capitals  because  spaces  are  more  easily  dis- 
tinguished. Each  succeeding  capital  represents  a  place. 
In  using  numbers,  it  must  be  remembered  that  the  range 
of  any  one  column  is  0  to  9,  not  1  to  10.  Where  let- 
ters and  numerals  are  used  together  it  is  better  to  alter- 
nate them.  It  is  also  advisable  to  omit  the  letters  I 
and  O  lest  they  be  mistaken  for  one  and  zero. 

Symbol  systems  are  "standards  of  measure"  and  must 
not  be  continually  improved.  In  order  to  avoid  con- 


318  BUSINESS    MANAGEMENT 

fusion  they  must  be  definitely,  even  if  arbitrarily,  estab- 
lished. In  fact  many  of  the  speakers  before  the 
American  Society  of  Civil  Engineers  have  claimed  that 
this  is  the  great  advantage  of  a  number  system,  since 
such  a  system  makes  no  attempt  at  being  logical.  When 
it  is  once  established  there  is  no  temptation  to  alter  it. 

Mnemonic  means  "aiding  or  designed  to  aid  the  mem- 
ory." The  advantage  of  having  symbols  mnemonic  is 
that  there  need  be  less  referring  to  charts  and  less  like- 
lihood of  mistake.  As  a  general  rule,  letters,  especially 
when  related  to  the  words  they  stand  for,  are  more 
easily  remembered  than  numerals.  The  two-letter  sys- 
tem is  the  one  most  generally  used.  Its  676  possible 
symbols  are  ample  for  most  requirements.  The  letters 
should  be  either :  first  and  last  letters  as  Rm,  for  Ram ; 
or  first  and  second  letters  as  Fr  for  Frame ;  or  first  and 
a  letter  indicating  the  sound  as  Dy  for  Die.  Where 
none  of  these  combinations  is  possible  the  same  end  can 
be  attained  by  making  the  letter  so  extremely  inappro- 
priate as  to  be  conspicuous.  This  is  doubtless  the  idea 
back  of  the  X  for  Inkstand  in  the  Derby  Desk  system 
described  below.  The  memorizing  of  symbol  systems 
is  not  so  formidable  a  task  as  it  appears  because  each 
man  uses  but  comparatively  few  of  the  total  number 
and  need  remember  only  those  he  uses. 

120.  A  working  system. — As  one  example  among 
many  that  might  be  given,  of  a  well-constructed  system, 
take  the  symbols  used  by  the  Derby  Desk  Company. 
In  this  system  the  following  capital  letters,  the  mne- 
monic value  of  which  should  be  noted,  are  used  to  in- 
dicate types  of  products. 

H — High  roll  top  desk. 

L — Low  roll  top  desk. 

C — Special  roll  top  desk. 


STANIJARDIZATION    AND    EQUIPMENT        319 

S— Flat  top  desk. 

D — Double  flat  top  desk. 

K — School-teacher's  flat  top  desk. 

F— Flat  top  typewriter  desk. 

DF — Double  desk  with  one  side  arranged  for  type- 
writer. 

PF — Flat  top  desk  with  typewriter  in  place  of  right- 
hand  bank  of  drawers. 

R — Roll  top  typewriter  desk. 

B — Bookcase. 

RB — Revolving  bookcase. 

P— Coat  tree. 

X — Inkstand,  single. 

DX — Inkstand,  double. 

M — Letter  tray. 

MC — Map  and  chart  case. 

T— Table. 

S — Umbrella  stand. 

W — Wardrobe. 

As  most  products  of  this  company  are  made  both 
with  sanitary  legs  and  with  drawers  to  the  floor,  sani- 
tary designs  are  indicated  by  the  prefix  of  the  letter 
O.  Styles  of  desk  or  bookcase  under  each  type  are 
indicated  by  a  serial  number.  The  length  in  inches 
follows  the  style  number.  Then  comes  the  type  symbol 
and  finally  the  number  of  the  catalog  (serially  num- 
bered) in  which  the  desk  is  described. 

Take,  for  instance,  the  symbol  O3360DF8.  To  one 
who  is  familiar  with  this  system  it  is  at  once  apparent 
that  this  refers  to  a  sanitary  desk,  style  33,  sixty  inches 
long,  a  double  desk  with  one  side  arranged  for  a  type- 
writer, described  in  catalog  numbered  8. 

This  is  not  at  all  a  complex  system.  It  takes  only 
a  short  time  to  become  thoroughly  familiar  with  it. 


320  BUSINESS    MANAGEMENT 

Obviously,  it  tells  all  that  is  necessary  in  order  to  iden- 
tify any  product  and  thus  prevents  indefiniteness,  as 
well  as  saves  a  great  deal  of  time. 

121.  Use  of  numbers  in  symbols. — Size  is  best  ex- 
pressed and  most  easily  remembered  as  a  numeral.    A 
series  of  arbitrary  numbers  is  suggestive  of  the  relative 
not  the  actual  size.    It  is  better,  if  possible,  to  use  some 
characteristic  dimension.    This  is  more  descriptive  and 
allows  the  adding  of  new  sizes  in  their  logical  order 
without  disturbing  the  existing  symbols.    Where  arbi- 
trary  numbers   are   assigned   a   sufficient   number   of 
blanks  should  be  left  to  cover  all  future  additions. 

In  addition  to  preventing  misunderstandings,  symbol 
systems  save  a  great  amount  of  writing  on  drawings, 
requisitions,  stock  records,  and  time  cards;  many  man- 
agers consider  this  saving  in  clerical  labor  as  their  great- 
est advantage. 

122.  Symbols  for  manufacturing. — Symbol  systems 
may  be  roughly  divided  into  four  classes  covering: 

1.  Finished  product. 

2.  Parts. 

3.  Operations. 

4.  Tools  and  machines. 

The  usual  method  of  symbolizing  the  finished  product 
is  to  divide  it  into  classes;  to  designate  each  of  these 
classes,  if  there  are  less  than  26,  by  a  single  suggestive 
letter;  and  to  represent  the  different  members  of  the 
class  by  consecutive  numbers.  Thus  a  certain  line  of 
presses  may  be  grouped  as  follows : 

Class  B — Bench  Presses  of  all  kinds. 

Class  C — Cutting,  Horning  and  Wing  Presses. 
Power,  Single  or  Double  action. 

Class  D — Drawing  and  Deepening  Presses.  Power, 
Single  or  Double  action. 


STANDARDIZATION    AND    EQUIPMENT        321 

Class  E — Embossing  and  Coining  Presses.  Power, 
Toggle  or  otherwise. 

Class  F — Foot  and  Hand  Presses — Lever  Pendulum 
Screw,  etc.,  Single  or  Double  action. 

Class  G — Gravity  Presses,  Drops,  with  Hand  Foot 
Crank  Belt  over  Roller  Lifter. 

Class  P — Punching  and  Shearing  Presses,  Power 
Throated. 

Class  S — Stamping  and  Bending  Presses,  Power 
Double-crank,  Composite  frame.  Throated  or  straight, 
upright  or  inclined  rectangular  or  round  beds. 

The  individual  presses  are  Cl,  C2,  C3,  El,  E2, 
W3,  etc. 

A  better  method  wherever  possible,  however,  is  to 
make  the  symbol  descriptive,  as  are  the  chemical  sym- 
bols, by  combining  a  number  of  their  elements.  Thus 
there  will  be  fewer  symbols  to  remember  and  anyone  can 
pick  out  the  meaning  of  the  combined  symbol  even  if  he 
has  not  seen  it  before.  The  Derby  Desk  Company's 
system  is  of  the  descriptive  kind. 

There  are  two  systems  of  designating  parts.  The 
older  one  takes  the  finished  model  and  numbers  its 
parts  consecutively.  If  Pi  is  the  model  symbol,  the 
part  symbols  would  be  Pl-1,  Pl-2,  Pl-3.  The  great 
disadvantage  of  this  system  is  that  with  the  growth  of 
interchangeable  parts  the  same  part  used  in  two  or 
more  machines  will  have  two  or  more  symbols.  This 
makes  stockkeeping  difficult  and  perpetuates  one  of  the 
very  faults  it  was  designed  to  eliminate,  the  confusion  of 
common  terminology.  Its  advantage  is  that  the  trade 
in  ordering  repair  parts  will  not  confuse  parts  of  dif- 
ferent models. 

The  newer  method  aiming  at  fewer  drawings,  altera- 
tion of  existing  patterns  whenever  possible  and  the 
n-2i 


BUSINESS    MANAGEMENT 

development  of  interchangeable  parts,  takes  the  part 
as  the  basis  and  builds  up  the  final  model.  This  second 
system  is  directly  opposite  in  nature.  The  parts  are 
grouped  according  to  their  similarity,  not  their  use. 
All  bolts,  for  instance,  would  be  classed  together  as 
bolts  and  designated  by  the  symbol  for  bolts,  fol- 
lowed by  such  particulars  as  material  and  size.  This 
greatly  facilitates  stockkeeping,  and  throws  the  re- 
sponsibility of  making  up  a  correct  bill  of  material  for 
each  manufactured  article  on  the  designer,  where  it 
belongs.  In  order  to  prevent  confusion  the  drawing 
and  the  pattern  should  be  designated  by  the  same  sym- 
bol as  the  part,  and  this  number  should  be  stamped 
on  the  part  in  some  way  to  facilitate  work  in  the  factory 
and  to  make  it  possible  for  customers  to  order  duplicate 
parts  without  consulting  a  catalog. 

123.  Standard  routine. — Time  study  is  one  way  of 
developing  a  standard  routine.  Evolution  is,  however, 
the  more  common  method  in  practice  to-day.  Evolution 
approaches  the  problem  not  from  the  standpoint  of  the 
work  to  be  done  but  of  the  best  previous  performance, 
and  is  more  or  less  unconsciously  followed  in  all  busi- 
nesses. One  man  in  a  shop  will  turn  out  more  work 
than  his  neighbor.  His  method  is  studied  and  made 
the  standard  for  the  shop.  By  and  by,  some  one  else, 
perhaps  a  foreman,  will  discover  a  short  cut  and  so,  little 
by  little,  the  efficiency  increases.  An  ambitious  clerk 
works  out  a  new  way  of  handling  credits  which  the 
office  adopts.  The  sales  manager  collects  suggestions 
from  his  older  salesman,  which  he  tries  out  and  finally 
crystallizes  into  a  manual,  the  codified  best-way-of-sell- 
ing.  The  difference  between  standardized  and  common 
practice  is  that  where  conditions  are  standardized  each 
advance  is  at  once  officially  recorded  whereas,  in  every- 


STANDARDIZATION    AND    EQUIPMENT        323 

day  life,  advances  are  recorded  by  tradition  alone  and 
so  are  likely  to  get  lost. 

Harrington  Emerson  has  graphically  compared 
standardized  practice  to  a  ratchet  which  holds  every- 
thing gained  so  far  without  in  any  way  retarding  further 
progress.  The  business  executive  can  stop  a  moment  to 
reflect  and  rest  without  letting  the  business  fall.  One 
man  starts  where  his  predecessor  left  off  instead  of 
spending  his  time  re-doing  a  problem  which  has  already 
been  solved.  It  is  the  ratchet  motion. 

124.  Steps  in  developing  standard  routine. — The  first 
step  in  establishing  a  standard  routine  is  to  find  out 
exactly  what  the  present  procedure  is.  One  way  to 
get  this  is  to  have  each  employe  write  out  exactly  what 
he  does,  together  with  any  suggestions  he  may  wish  to 
make  concerning  the  improvement  of  any  phase  of  the 
work.  Some  of  the  older  men  will  doubtless  object  to 
giving  away  their  secrets,  but  eventually  they  will  get  in 
line  to  keep  in  the  good  graces  of  the  firm.  The  next 
step  is  to  work  the  best  of  these  up  into  a  manual  to 
serve  as  standards  until  something  better  is  evolved. 
This  is  only  preliminary,  but  it  must  be  done  whether 
standards  are  to  be  developed  by  time  study  or  evolu- 
tion, the  better  method  usually  being  to  employ  both 
plans.  The  introduction  of  a  standard  routine  is  often 
delayed  unduly  while  the  standard  is  being  perfected 
on  paper,  and  thus  much  of  the  advantage  of  the  stand- 
ard is  foregone  and  its  ultimate  perfection  delayed. 
The  quickest  way  to  develop  a  standard  is  to  place  it 
in  concrete  form  before  the  office,  shop  or  sales  force. 
The  worker  must  then  agree  or  disagree;  his  test  will 
prove  it  right  or  wrong.  In  either  case,  his  ideas  are 
focused  for  the  use  of  the  office. 

It  is  also  advisable  to  profit  by  the  experience  of 


324  BUSINESS    MANAGEMENT 

others.     Mr.   Gilbreth  gave  the  following  testimony 
before  the  Interstate  Commerce  Commission: 

We  furnish  our  men  with  eighteen  bricks  in  what  we  called 
a  pocket  for  the  want  of  a  better  name.  That  pocket  consists 
of  a  tray  with  four  slats,  two  this  way  and  two  that  way  for 
handles.  I  got  the  idea  for  that  from  Mr.  Taylor  and  Mr. 
Gantt  in  the  matter  of  handling  pig  iron  at  the  Bethlehem 
Steel  Company.  They  found  after  long  experiment  that  92 
pounds  was  the  best  unit  for  handling  pig  iron.  If  that  is 
true  of  pig  iron,  and  the  laborer  makes  no  use  of  the  material 
he  carries,  it  must  be  true  also  of  brick.  So  we  arranged  to 
have  the  pocket  that  would  best  handle  92  pounds  of  brick.1 

Care  must  be  exercised,  in  adopting  others'  stand- 
ards, to  make  sure  that  conditions  are  the  same  or  to 
make  due  allowance  for  local  conditions.  Differences 
in  machinery,  hardness  of  metal  and  such  apparent  de- 
tails will  entirely  change  the  amount  of  work  which  can 
reasonably  be  expected. 

The  development  of  standards  both  of  measure  and 
of  routine  is  one  of  the  principal  duties  of  the  technical 
societies.  For  example,  the  American  Street  and  Inter- 
urban  Railway  Association  in  1906  adopted  and  recom- 
mended for  use  by  its  members  a  standard  code  of  rules 
for  the  government  of  conductors  and  motormen.  The 
American  Railway  Master  Mechanics'  Association 
recommended  a  standard  apprenticeship  in  1898  which 
they  have  amended  and  reiterated  from  time  to  time. 
The  American  Institute  of  Architects  in  conjunction 
with  the  Master  Builders'  Association  have  adopted  a 
uniform  building  contract.  There  is  a  society  specially 
organized  to  promote  uniformity  in  methods  of  testing 
cement. 

ifirandeis,  "Scientific  Management,"  p.  27. 


STANDARDIZATION    AND    EQUIPMENT       325 

125.  Value  of  printed  record. — However  the  routine 
is  developed,  it  should  at  once  be  put  on  paper.  The 
rapid  increase  of  civilization  since  the  introduction  of 
printing  as  compared  with  that  of  the  centuries  before 
shows  the  efficacy  of  the  printed  record.  The  record 
of  business  routine  operations  is  known  as  a  manual, 
and  it  is  surprising  to  see  how  universal  is  its  possible 
use.  In  the  office,  the  correspondence  manual  contains 
a  series  of  carefully  worked  out  paragraphs  covering 
routine  questions,  by  the  use  of  which  the  correspondent 
can  greatly  reduce  the  time  necessary  to  handle  his  mail. 
The  manual  of  the  Long  Island  Railroad  contains  773 
rules  covering  the  duties  of  different  employes,  how  to 
make  up  trains,  the  rights  of  trains,  how  to  signal,  etc. 
Similar  codes  are  in  force  on  all  railroad  systems.  Most 
department  stores  have  their  "Book  of  Rules."  The 
"Standard  Book"  of  the  Westinghouse  drafting  room 
contains  twenty-four  drawing  dictionaries  which  specify : 
lines  to  be  used;  letters  and  figures;  methods  of  sec- 
tioning; mechanical  features,  such  as  size  of  sheiet, 
position  of  title;  element  charts;  illustrations  of  the 
elements  of  their  various  machines ;  illustrated  index  of 
terms  used ;  digest  of  the  400  pages  of  circular  instruc- 
tions issued  from  time  to  time;  and  example  drawings 
and  abbreviations. 

While  the  material  in  the  manual  is  the  important 
thing  and  not  its  form,  nevertheless  it  is  convenient, 
where  the  firm  is  large,  to  publish  the  manual  as  a  loose- 
leaf  book  and  small  enough  to  slip  into  the  pocket. 
Thus  changes  may  be  made  from  time  to  time  without 
re-publishing  the  whole  book  and  because  of  its  con- 
venient form  it  can  be  carried  around  and  thus  be  at 
hand  when  required.  It  should  be  fully  indexed  to 
facilitate  its  use.  In  small  companies  it  is  convenient 


326  BUSINESS    MANAGEMENT 

to  typewrite,  mimeograph  or  blue  print  the  manual. 
An  even  simpler  method  is  a  scrap  book  in  which  are 
pasted  copies  of  each  specification  for  material  and 
each  letter  of  instruction  which  the  office  issues.  This 
is  not  as  convenient  as  the  other  forms  because  the 
material  is  not  properly  classified,  and  duplicates  can- 
not be  issued  without  considerable  trouble. 


CHAPTER  VII 

STANDARDIZATION  AND  WAGES 

126.  Goal  of  every  producer. — One  of  the  chief  dif- 
ferences between  machine-made  and  hand-made  goods 
is  that  the  latter  possess  greater  individuality.  The  re- 
cent revival  of  the  handicraft  trade  shows  what  a  strong 
hold  this  quality  in  a  ware  has  upon  the  consumer. 
Nevertheless,  when  the  producer  of  a  hand-made  article 
finds  that  competition  is  threatening  his  market  he  be- 
gins the  standardization  of  his  product.  He  may  first 
establish  a  definite  brand  for  his  article,  by  which 
method  he  hopes  to  impress  a  community  with  the  fact 
that  his  goods  possess  a  standard  of  purity  or  some  other 
quality  which  is  highly  desired  in  the  market.  Failing 
to  monopolize  the  trade  by  this  method,  he  may  attempt 
to  hold  his  market  by  a  reduction  in  the  cost  of  making 
his  goods.  If  his  goods  are  made  altogether  by  hand, 
the  costs  will  be  lessened  by  turning  out  a  larger  prod- 
uct than  before  in  a  given  period  of  time.  This  he  can 
do  with  the  best  results  if  he  can  make  a  standard  type 
and  can  confine  himself  to  the  making  of  it  over  and 
over  again.  This  is  standardization,  but  it  cannot  be 
carried  very  far  under  a  system  of  handicraft  labor,  for 
the  working  power  of  a  man  is  limited.  But  with  the 
addition  of  steam  power  and  machinery  to  the  work- 
man's shop,  the  question  of  being  tired  does  not  apply 
to  either  the  engine  or  the  tools.  The  more  work  these 
can  be  made  to  do,  the  higher  will  be  the  productive  ca- 
pacity of  the  shop.  But  before  he  can  determine  what 

327 


828  BUSINESS    MANAGEMENT 

the  highest  efficiency  of  a  shop  is,  he  not  only  must 
know  his  own  endurance  and  skill,  but  must  determine 
what  the  possibilities  of  his  machine  are  under  the  best 
conditions. 

127.  Three  factors  conditioning  output. — The  three 
principal  factors  conditioning  the  output  of  both  man 
and  machine  are  speed,  the  character  of  the  material,  and 
*  the  tools.  It  is  therefore  necessary  to  determine  what 
particular  speed,  what  particular  grade  of  material, 
what  particular  quality,  what  particular  kind  of  tool  can 
all  be  united  in  producing  the  greatest  amount  of  goods 
of  a  given  quality  during  any  production  period.  When 
this  has  been  determined  for  each  of  the  factors,  we 
have  what  is  known  as  standard  speed,  standard  ma- 
terials, and  standard  tools.  As  the  size  of  the  industry 
increases  and  the  number  of  men  and  machines  grows,  it 
becomes  necessary  to  apply  the  principle  of  standard- 
ization x  to  other  processes,  equipment  and  appliances. 
Thus  we  find  standard  times  for  handling  the  work 
standard  times  for  assembling,  standard  office  forms 
and  finally  a  standard  wage,  which  rests  upon  a  consid- 
eration of  the  relations  of  all  those  processes  which  have 
been  standardized  to  the  labor  which  is  necessary  to  di- 
rect them. 

The  standardizing  of  a  product,  a  tool,  or  of  a  process 
or  of  a  relation  depends  upon  the  removal  of  as  many  as 
possible  of  the  variable  or  uncertain  factors.  What 
may  be  a  standard  under  one  set  of  productive  con- 
ditions may  be  entirely  set  aside  under  another  because 
some  uncertainty  connected  with  the  old  standard  has 

i  In  the  Santa  Fe  system  of  transportation,  referring  only  to  the 
various  shops,  roundhouses,  etc.,  there  are  23,000  operations  recognized 
as  standard,  with  additions  being  made  every  year. 


STANDARDIZATION  AND  WAGES  329 

been  removed.  The  measure  therefore  that  is  used  in 
a  factory  in  determining  its  productive  efficiency,  or  the 
efficiency  of  any  part  of  the  productive  process,  is  the 
lowest  possible  time  in  which  each  piece  of  work  can  be 
completed.  This  is  known  as  the  standard  time.  A 
standard  time,  however,  is  simply  the  reduction  to  its 
lowest  terms  of  a  product  which  is  made  up  of  a  number 
of  other  predetermined  standards.  Thus  the  "standard 
times"  for  any  shop  depends  upon  the  following: 

1.  "The  character  and  limitations  of  the  existing  ma- 
chine tools. 

2.  "The  introduction  and  use  of  high-speed  steel  for 
cutting  tools. 

This  will  include: — 

a.  "The  determination  of  the  proper  shapes  for 
tools. 

b.  "The  provision  for  proper  treatment  of  steel  of 
this  character  in  forging,  hardening  and  grind- 
ing. 

c.  "The  determination  of  the  best  working  con- 
ditions possible,  such  as  cooling  agent,  etc. 

3.  "The  securing  of  the  maximum  possibilities  in  cut- 
ting speeds. 

This  includes: — 

a.  "The  careful  consideration  of  the  tests  already 
made  and  submitted  by  different  investigators, 
giving  of  course  due  thought  to  the  conditions 
existing  at  the  time  of  the  test. 

b.  "The  adaptation  of  these  records  to  existing 
shop  conditions  and  the  making  of  a  thorough 
test  in  the  local  shop  under  the  limitations  im- 
posed by  types  of  machine  tools  existing  in  the 
shop. 


330  BUSINESS    MANAGEMENT 

4.  "The  collection  of  all  production  data  upon  a  sys- 
tematic plan  and  their  arrangement  so  that  they  can  be 
used. 

a.  "The  instruction  of  the  foremen  and  the  work- 
men as  to  the  results  to  be  expected  and  how  to 
secure  them. 

b.  "The  insurance  that  the  every  day  production 
follows  this  standard  of  efficiency." 

128.  Determination  of  handling  time. — Many  of  the 
standards  pertaining  to  materials,  machines,  and  speeds 
belong  for  their  determination  within  the  province  of 
the  engineer.  As  an  illustration  of  how  far  standard- 
ization has  gone  as  a  matter  of  business  policy,  the 
adoption  of  standard  times  for  handling  the  work  and 
for  assembling  the  parts  presents  the  most  recent  de- 
velopment. Handling  the  work  is  divided  into  four 
parts  and  a  standard  time  determined  for  each  division. 
These  are  the  times  required  to  handle  the  parts,  to  "set 
up"  the  job,  to  machine  the  work  and  to  remove  the 
work.  Only  one  of  these  will  be  illustrated  and  this  for 
the  purpose  of  showing  what  commonplace  and  simple 
activities  are  receiving  the  closest  scrutiny  of  the  pro- 
gressive manager. 

The  time  required  to  handle  the  parts  in  any  large 
factory  is  an  important  consideration.  The  loss  of 
much  time  may  result  from  the  lack  of  proper  facilities, 
and  methods,  and  from  a  tendency  of  workmen  to  kill 
time.  The  proper  facilities  to-day  for  the  handling  of 
heavy  goods  especially  would  be  pneumatic  or  electric 
hoists  connected  with  an  overhead  single  track  which 
serves  a  number  of  machines.  The  method  of  handling 
work  has  been  standardized  by  having  certain  opera- 
tions, such  as  the  piling  or  placing  of  parts,  done  in  the 

i  "  Profit-Making  Management,"  by  C.  U.  Carpenter,  page  83. 


STANDARDIZATION  AND  WAGES  331 

same  manner  and  place  each  time  the  operation  is  per- 
formed. 

In  the  handling  of  light  work  there  are  various  opera- 
tions that  should  be  given  close  attention ;  for  example, 
it  is  best  for  the  stock  to  be  carried  in  boxes  of  the  stand- 
ard size.  This  reduces  the  number  of  sizes  needed  to 
the  minimum. 

A  check  upon  the  workman  may  be  effected  by  care- 
fully selecting  the  place  where  the  box  is  to  stand.  Very 
often  a  low,  strong  table  can  be  used  to  good  advantage. 
This  table  at  once  standardizes  the  spot  where  the  stock 
shall  be  placed,  and  the  fact  that  the  workman  becomes 
accustomed  to  reach  for  his  stock  always  in  the  same  spot 
adds  appreciably  to  the  speed  of  the  handling.  The 
conditions  are  now  ready  for  a  test  to  be  made  in  order 
to  determine  the  least  time  necessary  to  do  the  work.  A 
series  of  stop  watch  tests  upon  an  active  workman  will 
serve  as  a  basis  for  a  standard  time  for  handling  this 
part  of  the  work.  It  is  well,  however,  to  check  this  test 
by  other  trials  performed  by  an  expert  "tester."  The 
latter  is  really  a  standardized  laborer. 

The  establishment  of  a  standard  time  for  assembling 
work  has  practical  difficulties  connected  with  it  which 
are  far  more  difficult  to  overcome  than  in  the  case  of  ma- 
chine standards.  The  human  elements  of  judgment 
and  skill  are  more  difficult  to  determine  than  the  pecul- 
iarities of  a  machine.  In  most  factories  the  workmen 
dislike  to  have  their  best  speed  known  to  the  manage- 
ment, for  it  often  means  a  relative  decrease  of  pay. 
The  only  general  rule  that  can  be  applied  in  the  de- 
termination of  the  standard  times  in  this  work  is  to  sep- 
arate the  assembling  operations  for  any  particular  job 
into  as  small  a  number  as  possible.  If  a  workman  can 
be  confined  to  three  or  less  operations  the  problem  is 


332  BUSINESS    MANAGEMENT 

much  simplified.  But  where  the  assembler  has  as  many 
as  ten  different  operations  on  a  particular  part,  the  solu- 
tion becomes  highly  involved.  The  character  of  the 
difficulties  put  in  the  way  of  the  determination  of  this 
standard  time  indicates  that  the  manager  should  lend 
his  energies  to  solve  it.  "The  waste  of  time,"  says  Mr. 
C.  U.  Carpenter,  in  his  excellent  book  on  "Profit 
Making  Management,"  "in  the  ordinary  assembling  de- 
partment of  the  average  manufacturing  concern  is  al- 
most beyond  belief." 

A  test  made  by  Mr.  Carpenter  on  assembling  work 
shows  what  can  be  done  in  effecting  economy  in  this 
direction.  Taking  advantage  of  a  strike  in  the  polish- 
ing department,  a  system  of  determining  the  standard 
times  of  assembling  was  adopted  with  the  new  men. 
Twelve  expert  polishers  were  put  in  charge  of  instruct- 
ing sixty-two  green  hands.  A  partial  analysis  of  the 
work  after  a  few  weeks  showed  that  a  reduction  of  40 
per  cent  could  easily  be  made  in  the  rate  paid  and  still 
provide  the  men  with  a  good  wage.  In  three  weeks 
time  it  was  found  possible  to  put  the  entire  force  upon 
piece  work  at  the  reduced  rate.  Being  assured  that  no 
further  reduction  would  take  place  the  men  were  urged 
to  do  their  best.  The  records  showed  that  at  the  end  of 
a  period  of  ten  weeks,  the  average  earnings  exceeded 
$5.50  per  day  whereas  under  the  old  system  it  was  only 
$3.00  per  day.  The  work  itself  increased  so  materially 
that  at  the  end  of  six  months  the  actual  records  showed 
savings  in  the  pay  roll  in  this  department  amounting  to 
over  $55,000  per  year. 

The  relation  of  standard  times  to  other  features  of 
organization  is  very  close  and  vital.  The  determination 
of  the  "shortest  time"  in  which  a  job  can  be  done  is  the 
first  place  to  begin  in  establishing  a  wage  system;  and 


STANDARDIZATION  AND  WAGES  333 

what  standard  times  mean  to  the  cost  system  has  only  to 
be  mentioned,  to  be  realized. 

129.  Principal  elements  in  getting  efficiency. — The 
methods  by  which  greater  efficiency  is  gained  are  some- 
times called  "betterment  work."    The  principal  elements 
that  have  been  treated  of  so  far  in  previous  chapters  are: 

(1)  the  centralization  of  manufacture  at  shops  best 
fitted  by  reason  of  location  or  otherwise  for  doing  the 
work;  (2)  standardization  of  parts,  of  tools  and  of 
operations;  (3)  supervision  of  materials,  tools,  and 
methods  and  the  planning  and  designing  of  devices  and 
tools  to  help  labor  and  machines  in  reducing  delays. 
There  still  remains  a  fourth  element  for  consideration 

—the  element  which  relates  to  the  reduction  of  labor 
costs  by  the  application  of  a  system  of  wage  payments. 

130.  Wage  systems. — In  determining  the  standard 
time  of  any  process  involving  the  combined  work  of  ma- 
chines and  men,  the  many  difficulties  that  arise  are 
largely  due  to  the  "human  element."     Some  of  these 
difficulties  have  been  mentioned  and  among  them  is  the 
difference  in  men's  capacity  to  work.     Therefore,  be- 
fore a  standard  time  can  be  adopted  for  a  particular 
operation,  it  must  first  be  determined  what  the  capacity 
of  the  average  man  is.     If  the  standard  time  is  based 
upon  what  the  best  man  can  do,  and  the  average  laborer 
is  expected  to  reach  that  standard,  the  practical  failure 
of  any  wage  system  based  upon  it  is  assured, 

Standards  are  of  little  use  unless  they  can  be  used  as 
measures  in  comparisons.  A  standard  used  in  a  system 
of  wages  must  be  used  in  effecting  two  comparisons. 
First,  the  working  efficiency  of  each  laborer  at  differ- 
ent times  must  be  compared ;  second,  the  working  power 
of  different  laborers  must  be  compared.  By  a  consid- 
eration of  these  two  comparisons,  the  manager  is  en- 


334  BUSINESS    MANAGEMENT 

abled  to  determine  what  the  individual  laborer  is  capable 
of  doing  from  day  to  day  and  what  he  ought  to  do  as 
compared  with  the  other  laborers  who  do  the  same  grade 
of  work.  Having  determined  what  efficiency  is  neces- 
sary to  produce  his  goods  at  a  certain  cost  in  order  to 
make  the  required  profits,  the  necessity  devolves  upon 
the  manager  of  keeping  the  rate  of  production  up  to  the 
required  standard.  It  is  at  this  point  that  the  question 
arises  as  to  how  the  laborers  may  be  held  to  the  standard 
efficiency.  The  machine  asks  only  as  its  return  the  re- 
pairs and  renewals  necessary  to  keep  it  going.  The 
laborer,  on  the  other  hand,  seeks  as  his  return  all  that 
he  produces.  The  nearer  he  thinks  he  is  approaching 
to  this  demand,  the  greater  is  the  stimulation  to  work. 
It  is  therefore  not  always  the  high  wages  that  determine 
the  labor  efficiency  of  a  factory  but  the  system  by  which 
the  wages  are  determined  and  paid. 

131.  Systems  of  pay. — The  most  prominent  systems 
of  pay  in  the  United  States  are  the  day-work  plan, 
the  piece  work  plan,  the  premium  plan,  the  differential 
plan,  and  the  bonus  plan. 

The  first  method  is  usually  employed  where  special 
conditions  prevail.  Thus  it  would  be  fatal  to  adopt  a 
system  of  wages  in  a  department  where  great  care  and 
accuracy  were  demanded  whereby  the  workmen  were 
stimulated  to  produce  more  but  inferior  work. 

The  piece  work  system  in  its  simplest  form  provides 
for  the  payment  of  work  by  the  piece.  It  was  at  first 
hailed  with  enthusiasm  by  the  worker,  but  so  many 
abuses  crept  into  the  system  which  proved  hurtful  to  the 
piece-worker,  that  it  is  now  generally  regarded  by  work- 
ing men  with  suspicion.  One  of  the  abuses  is  the  prac- 
tice of  cutting  rates  when  the  men  begin  to  earn  high 
wages.  The  mischief  of  cutting  rates  is  very  largely 


STANDARDIZATION  AND  WAGES  335 

caused  by  poor  judgment  in  establishing  the  piece-rate 
in  the  first  place.  The  standard  prices  or  the  standard 
times  were  not  based  upon  scientifically  determined 
data,  but  upon  some  such  basis  as  the  "best  previous 
records,"  an  "ordinary  try-out,"  or  the  foreman's  esti- 
mate. The  laborer  generally  saw  that  by  working 
harder  he  could  increase  his  income  by  several  per  cent 
over  the  old  rate,  but  this  generally  led  to  a  similar  per 
cent  cut  in  the  price.  Thus  the  laborer  was  left  work- 
ing very  much  harder  than  a  few  days  before  with  a 
return  in  wages  no  larger  than  formerly. 

With  the  day  work  plan  and  the  piece  work  systems 
as  a  basis  other  methods  have  been  made  possible  by  the 
more  accurate  determination  of  standard  times.  The 
bonus  system  is  one  in  which  there  is  a  definite  time  set 
for  the  accomplishing  of  a  task  and  which  provides  for 
the  payment  of  an  extra  sum  of  money  if  the  work  is 
completed  within  this  time.  This  is  a  modification  of 
the  day-work  plan,  whereby  a  definite  task  has  been 
more  scientifically  determined  in  regard  to  the  time  nec- 
essary to  accomplish  it.  The  principle  involved  in  this 
system  as  in  the  other  is  to  establish  a  fixed  rate  of  pay 
per  day  so  that  if  the  laborer  turns  out  less  work  than  is 
demanded  by  this  standard  he  will  be  insured  at  least  of 
a  living  wage.  On  the  other  hand,  if  he  comes  up  to 
the  standard  set  or  does  more,  he  will  be  paid  a  propor- 
tionately larger  wage.  The  Halsey  System,  named 
after  its  inventor,  is  an  example  of  a  wage  system 
formulated  along  these  lines. 

A  standard  time  is  set  for  accomplishing  the  work, 
but  if  for  some  cause  beyond  the  control  of  the  work- 
man that  piece  of  work  cannot  be  done  in  the  time  set, 
the  laborer  gets  the  wage  previously  agreed  upon.  It 
is  also  understood  that  this  rate  of  wages  will  not  be 


336  BUSINESS    MANAGEMENT 

cut.  Supposing  that  the  man  was  working  on  a  six- 
hour  day  basis,  he  would  be  expected  to  finish  in  six 
hours  and  would  be  paid  25  cents  an  hour  or  $1.50  per 
day.  If  he  did  the  work  in  five  hours  he  would  get  a 
part  of  the  wages  which  he  had  saved  by  finishing  an 
hour  sooner.  If  the  proportion  agreed  upon  is  one-half 
he  would  then  get  ^l.37l/2  f°r  tne  ^ve  hours'  work- 
namely,  five  hours'  work  at  25  cents  plus  12%  cents 
for  the  hour  he  saved.  If  he  does  the  work  in  three 
hours  he  would  get  three  times  25  cents  plus  one-half  of 
the  wages  for  the  time  saved  or  $1.12%. 

Under  this  system,  therefore,  the  laborer  never  fell 
below  the  day  rate  that  was  fixed  and  he  always  had  the 
chance  of  earning  more  by  turning  out  more  work. 
This  was  a  compromise  between  the  day  work  and  piece 
work  system  which  lessened  the  effects  of  each.  The 
employer  received  part  of  the  benefit  of  the  employes 
increased  output,  thus  eliminating  the  incentive  to  cut 
the  laborer's  wages.  On  the  other  hand,  the  workman 
would  not  be  inclined  to  limit  his  output  because  he 
wished  to  do  as  little  work  as  possible,  as  under  the  day- 
work  plan,  or  for  fear  that  his  wages  would  be  cut,  which 
so  frequently  happens  under  the  piece-work  plan. 

132.  Taylor  differential  system. — Another  system  is 
that  known  as  the  Taylor  differential  piece-rate  sys- 
tem, after  its  inventor.  This  is  based  on  a  carefully 
determined  standard  time,  a  careful  study  having  been 
made  of  the  operations  involved  and  estimates  of  how 
long  it  would  take  a  first-class  man  to  accomplish  a 
given  piece  of  work.  If  that  standard  is  reached,  the 
workman  receives  a  high  rate  of  wages.  If  he  just 
falls  short  of  the  standard  set,  a  considerable  deduction 
from  the  day  rate  is  made.  This  system  is  only  an- 


STANDARDIZATION  AND  WAGES  337 

other  of  the  special  plans  made  to  suit  particular  con- 
ditions. It  could  only  be  introduced  into  high  grade 
shops  where  the  work  is  standardized  and  the  men 
trained  by  functional  foremen.  It  might  be  applied 
where  the  intensity  or  the  rate  of  production  must  be 
high  in  order  to  get  the  utmost  out  of  the  very  costly 
machinery,  tools,  and  so  on. 

133.  Efficiency  system. — The  efficiency  system  is 
still  another  of  these  plans.  Here  the  time  limit  is  set 
as  in  the  Taylor  system,  and  if  it  is  reached  by  the 
workman  he  receives  a  high  bonus;  that  is,  the  em- 
ployes are  paid  by  day  wages  but  are  stimulated  by  an 
additional  bonus  proportioned  to  their  efficiency — 
efficiency  in  this  sense  being  the  ratio  between  the  time 
he  takes  for  the  job  and  the  standard  or  schedule  time 
set  for  him.  The  amount  of  the  bonus  is  determined 
by  a  standard  table  which  fixes  the  percentages  of 
wages  for  time  actually  worked  that  is  paid  in  addition 
as  bonus  at  any  determined  rate  of  efficiency.  As  ap- 
plied in  the  Santa  Fe  shops  this  table  grants  no  bonus 
below  66  2-3  per  cent  efficiency — that  is,  below  the  rate 
of  working  at  which  the  man  takes  one  and  one-half 
the  standard  time  for  completing  his  job;  from  that 
point  upward  it  allows  bonus  on  a  rising  scale,  which 
reaches  20  per  cent  additional  to  actual  wages  at  100 
per  cent  efficiency  (or  the  completion  of  the  job  in  the 
standard  time),  and  thereafter  adds  1  per  cent  of 
wages  for  each  additional  1  per  cent  of  efficiency. 

Thus  it  is  seen  that  this  system  does  not  punish  a  man 
for  not  reaching  a  standard  and  omits  the  failing  of 
the  Taylor  system  by  enabling  the  men  to  earn  a  fair 
wage  if  unforeseen  difficulties  occur.  For  instance,  if 
a  man  reaches  100  per  cent  efficiency,  he  will  receive  a 

11—22 


BUSINESS    MANAGEMENT 


20  per  cent  bonus ;  if  he  falls  below  or  goes  above  this 
standard,  he  will  receive  less  or  more  according  to  the 
following  table: 


Efficiency. 

67%  . 

74%  . 

80%  . 

85%  . 

90%  . 

95%  . 

100%  . 

110%  . 

120%  . 


Percentage  of 
Additional  pay. 
....  0 
....   1 
....  3.37 
....  6.17 

9.91 

14.53 

....20 

....30 

..40 


The  rate  of  pay  would  be  as  follows : — 


Hours' 
work 


Days'  work. 


Daily 
Wages 

$1.75 

1.50 

1.25 

1.00 

.75 

.50 

.25 


Hourly 
Rate 

.25 
.25 
.25 
.25 
.25 
.25 
.25 


Piece-work.                   Pre 

Daily 
Wages 

Hourly 
Rate 

Daily 
Wages 

$1.50 

.214 

$1.75 

1.50 

.25 

1.50 

1.50 

.30 

1.375 

1.50 

.375 

1.25 

1.50 

.50 

1.125 

1.50 

.75 

1.00 

1.50 

1.50 

.875 

Hourly 
Rate 

.25 

.25 

.275 

.312 

.37 

.50 

.875 


In  order  to  make  a  further  comparison  of  the  various 
systems,  we  will  assume  that  the  following  conditions 
might  occur: 

1.  The  workman  does  no  work  at  all, 

2.  The  workman  does  the  standard  work  within  the 
standard  time, 

3.  The  workman  does  all  the  work  in  no  time  at  all. 
Then  under  the  various  systems  we  have  mentioned 

their  pay  would  be  as  follows: 


STANDARDIZATION  AND  WAGES  339 

No.  1.  No.  2.  No.  3. 


Day-Rate, 
Piece-Rate, 
Premium, 

Taylor, 
Efficiency, 

Full  wages, 
No  wages, 
Full  wages, 

No  pay, 
Full  wages, 

Full  wages, 
Normal  pay, 
Full  wages, 

Bonus  above 
normal  pay, 
Bonus  above 
normal  pay, 

No  wages. 
Full  pay. 
50%  additional 

pay. 

Full  bonus  and 
full  pay. 
Full  bonus  and 
full  pay. 

134.  Bonus  plan. — The  bonus  plan  of  payment,  when 
combined  with  methods  that  determine  accurately  the 
shortest  time  in  which  a  job  can  be  finished,  has  much  to 
recommend  it.  In  the  first  place,  it  is  easily  under- 
stood and  can  therefore  be  easily  introduced  among  a 
body  of  laborers.  It  is  easily  adapted  in  some  form  to 
almost  any  other  system  of  pay  that  may  be  already  in 
existence  in  the  shop.  Some  managers  have  found  it 
advisable  to  extend  the  bonus  plan  so  as  to  include  the 
job  bosses  and  the  foremen.  The  plan  in  this  case  is  to 
give  bonuses  to  the  foremen  in  case  all  the  men  under 
them  earn  bonuses.  This  has  the  advantage  of  stimu- 
lating the  foreman  to  give  immediate  and  close  atten- 
tion to  the  inefficient  workman.  He  will  either  attempt 
by  proper  and  speedy  training  to  raise  his  efficiency  or 
drop  him  from  the  pay  roll. 

Thus  from  the  point  of  view  of  labor  the  great  pur- 
pose of  standardizing  both  as  to  operations  and  time  is 
to  introduce  some  system  of  wages  whereby  efficiency  is 
increased  and  stimulated  under  some  method  of  bonus 
awards. 

Perhaps  the  greatest  discovery  which  the  modern 
manager  has  made  in  his  studies  and  attempts  to  solve 
his  labor  problems  through  better  wage  systems  is  the 
fact  that  the  efficiency  of  the  whole  organization  is  the 
efficiency  of  the  individual  workman  and  that  the  lat- 
ter is  secured  and  stimulated  by  giving  him  a  wage  pro- 
portioned to  his  production. 


CHAPTER   VIII 

CONTROL    OF    LABOR 

135.  High  cost  of  man  power. — The  difference  be- 
tween the  costs  of  man  power  and  mechanical  physical 
force  is  tremendous.  Large  electric  power  companies 
quote  prices  of  10  cents  to  2  cents  per  kilowatt  hour. 
And  prices  as  low  as  .5  cents  have  been  known  where 
electric  current  was  used  in  very  large  quantities. 

A  man  power  has  been  estimated  to  be  equal  to  about 
one- tenth  of  a  horse  power.  On  the  basis  that  a  kilo- 
watt is  1.34  horse  power  and  that  labor  is  paid  15  cents 
an  hour,  it  is  figured  by  a  prominent  engineer  that 
human  physical  force  is  from  11.2  to  2.24  times  as  expen- 
sive as  electro-motive  force — the  force  in  each  case  being 
purchased  from  the  generator. 

The  most  significant  factor  in  the  development  of 
the  American  nation  whether  we  look  at  it  from  the 
political,  religious,  social  or  economic  side  is  the  high 
cost  of  man  power.-  No  nation  is  likely  to  advance 
with  equal  rapidity  along  all  lines  at  once,  for  that 
element  in  a  nation's  life  matures  most  quickly  which 
calls  to  it  the  strongest  men.  Business,  therefore,  in 
America  has  been  able  to  overshadow  everything  else 
because  it  could  pay  the  price. 

As  a  converse  proposition,  it  might  be  stated  that 
business  can  pay  the  price  because  it  has  drawn  to 
itself  the  highest  type  of  man  power,  the  men  who 
think.  Thinkers  and  leaders  in  the  economic  world 
have  seen  the  advantages  of  replacing,  where  possible, 
the  high  priced  physical  human  labor  by  the  cheaper 

340 


CONTROL    OF    LABOR  341 

natural  forces.  Thus  business  itself  has  been  modified 
from  within  by  the  same  force  which  made  it  the  lead- 
ing factor  in  our  civilization;  the  high  cost  of  man 
power  has  compelled  business  men  to  use  steam,  elec- 
tricity and  water  power.  Few  managers  to-day  need 
to  be  told  that  the  most  efficient  way  to  utilize  man's 
physical  strength  is  the  employment  of  it  in  the  control 
of  machinery  by  which  the  work  is  actually  performed. 
The  locomotive  engineer  or  the  man  who  manipulates 
the  many-tonned  trip  hammer  controls  forces  thousands 
of  times  greater  than  they  could  generate  personally. 

But  there  comes  a  time  in  all  progress  when  the  ad- 
vancement in  a  particular  direction  is  slowed  down  and 
when  every  increment  of  gain  is  made  at  greater  and 
greater  costs.  This  is  the  case  at  present  in  the  basic 
industries.  Every  machine  needs  a  man  to  tend  it  and 
thus  there  is  a  point  below  which  the  substitution  of 
men  by  machinery  cannot  go.  Realizing  this,  a  few 
progressive  managers  are  looking  in  new  directions  for 
the  saving  in  or  at  least  the  more  economical  use  of  this 
high-priced  man  power. 

136.  Waste  of  human  power. — When  the  chief  con- 
cern of  the  manager  was  to  get  out  his  product,  no  mat- 
ter what  its  quality,  of  what  use  was  it  to  speak  of  a 
science  of  labor  control  ?  He  needed  men — the  stronger 
the  better.  The  industrial  frontier  was  advancing  by 
leaps  and  bounds  and  men  were  needed.  Any  kind 
would  do.  The  manager  seldom  questioned  closely  to 
see  if  he  was  "the  man  for  the  job"  when  he  employed 
him;  and  when  he  dismissed  an  employe  he  assumed 
that  the  employes  failure  was  due  to  general  incom- 
petence. That  the  man  might  simply  be  a  "misfit" 
never  occurred  to  the  manager. 

The  frontier  days  of  business  are  gone.     "Big  kill- 


342  BUSINESS    MANAGEMENT 

ings"  with  primitive  methods  are  now  as  scarce  in  busi- 
ness as  in  hunting.  It  is  time  that  some  of  the  energy 
of  investigations  be  turned  upon  the  question  of  labor 
adjustment — the  more  economical  use  of  human  power. 
Consider  the  efforts  of  our  schools,  colleges  and  private 
laboratories  to  solve  questions  pertaining  to  mechanical 
and  electrical  engineering;  the  struggle  to  produce 
mechanical  refinements  and  power  saving  appliances; 
the  tests  of  coal,  oil  and  other  fuels;  the  gauges  for 
measuring  the  use  of  power — and  then  consider  the 
small  amount  of  effort  used  in  investigating  the  use 
and  conservation  of  labor  power! 

Some  years  ago,  late  in  1907,  in  a  very  large  machine  shop 
we  utilized  the  month  of  shut-down,  when  90%  of  the  em- 
ployes had  been  laid  off,  to  relocate  75%  of  the  machines  so  as 
to  facilitate,  expedite,  and  cheapen  production.  Nothing  was 
done  as  to  personnel,  although  it  is  obvious  that  an  organizing 
skill,  that  could  install  in  poor  locations  three-quarters  of  the 
machines,  would  also,  to  at  least  some  extent,  fill  the  personal 
positions  badly;  and  so  it  proved,  for  when  business  started 
up  again  there  were  a  succession  of  demoralizing  and  costly 
strikes. 

Investigation  shows  that  in  most  industrial  plants  at  least 
three-quarters  of  the  men  are  badly  placed,  which  does  not 
in  the  least  mean  that  the  men  are  undesirable.  An  intelligent 
readjustment  and  reassignment  of  positions  without  discharge 
may  improve  the  efficiency  of  a  plant  30%  to  40%. 

Efficiency  tests  and  analysis,  tests  of  operation,  not  of  or- 
ganization, always  show,  among  the  day  wage-earners  in  the 
same  plant,  individual  variations  between  30%  and  120%  ; 
the  extremes  of  actual  test  on  a  whole  month's  work  being  7% 
and  210%.  The  210%  man  was  evidently,  by  accident  or 
choice,  extremely  well  fitted  to  his  work;  the  7%  man  was 
equally,  by  accident  or  choice,  extremely  poorly  fitted  to  his 
work.  Operation  can  gradually,  in  the  course  of  months  and 


CONTROL    OF    LABOR  343 

years,  eliminate  men  of  low  efficiency,  and  by  experiment  and 
test  and  successive  discharges  replace  them  with  men  of  higher 
efficiency.  In  this  way  it  is  possible  in  the  course  of  three  or 
four  years  to  bring  the  efficiency  of  operation  up  from  50% 
to  100%,  but  as  an  element  in  organization  it  is  possible  by 
predetermination  of  aptitudes  to  curtail  the  time  very  greatly 
and  in  the  end  secure  a  better  personnel.1 

137.  Periods  of  rest  and  relaxation. — While  it  is 
true  that  experiments  have  shown  that  a  man  power  is 
equivalent  to  about  one-tenth  of  a  horse  power,  there 
are  elements  in  calculating  labor  power  that  do 
not  need  to  be  considered  in  determining  mechanical 
efficiency.  A  man  is  spending  his  own  energy  first  for 
himself  and  then  indirectly  for  the  benefit  of  the  mana- 
ger. When  the  fatigue  point  is  reached  in  a  man,  the 
consequences  of  continued  labor  are  something  more 
than  slackened  production;  he  is  robbing  himself  of  his 
health — the  storage  battery  of  his  working  power.  It 
is  at  this  point  that  employers  of  labor  need  more 
knowledge  of  the  relationship  which  should  exist  be- 
tween the  periods  of  rest  and  relaxation  for  "different 
volumes  of  load"  carried  by  the  laborers.  They  should 
be  able  to  see  how  to  adjust  these  periods  in  the  pre- 
determination of  industrial  operations  so  as  to  obtain 
the  maximum  of  work  without  exceeding  the  "elastic 
limit"  of  the  employe.  It  was  along  this  line  that  Mr. 
F.  W.  Taylor  conducted  some  of  his  most  important 
investigations.  He  not  only  recognized  that  the  work- 
ing-time units  must  be  separated  from  the  resting-time 
units  but  he  first  pointed  out  that  different  kinds  of 
work  require  different  percentages  of  rest  depending 
upon  the  kind  and  nature  of  the  work  done. 

1  Harrington  Emerson,  address  before  the  Efficiency  Society,  Annual  Meeting, 
1913. 


344  BUSINESS    MANAGEMENT 

Although  little  work  has  as  yet  been  done  along  this 
line,  there  are  evidences  of  much  interest  in  the  deter- 
mination of  a  fair  day's  work.  Time  studies,  fatigue 
studies,  work  records,  etc.,  are  growing  quite  common 
and  their  results  all  bear  on  the  determination  of  a  fair 
day's  work. 

138.  A  fair  day's  pay. — Closely  associated  with  a 
fair  day's  work  is  the  question  of  a  fair  day's  pay. 
They  are  the  two  sides  of  the  same  shield.     The  em- 
ployer sees  one  side;  the  employe  the  other.     It  will, 
however,  be  a  comparatively  simple  thing  to  determine 
a  fair  wage  when  we  know  how  to  estimate  the  labor 
involved.    Yet  there  are  other  elements  to  be  considered 
besides  the  amount  of  energy  expended  by  the  laborer, 
and  the  rate  per  day  he  is  paid  by  the  manager.   These 
are  (1)  steadiness  of  employment,  (2)  permanency  of 
employment  and  (3)  future  prospects. 

Although  American  business  men  proved  to  the 
world  that  high  wages  did  not  necessarily  mean  high 
costs  of  production,  it  seems  difficult  for  many  men  to 
see  the  application  of  this  principle  when  they  are 
brought  face  to  face  with  the  question  of  labor  costs  in 
their  own  store  or  factory.  They  see  the  "wages  paid" 
but  forget  the  "output."  Wages  paid  are  high  or  low 
depending  on  the  size  of  the  output;  "wages  received" 
are  high  or  low  in  proportion  to  the  time  which  the 
laborer  takes  to  do  the  work.  The  combination  of  low 
wages  given  with  high  wages  received  would  prove  to 
be  ideal. 

139.  Illustrations. — CASE  I. — Assume    a    workman 
turns  out  ten  units  of  a  given  product  for  which  he  is 
paid  $3.00  a  day.     The  upkeep,  interest  and  deprecia- 
tion  of  his   machine   amount   to   $6.00   a   day.      The 
factory  overhead  cost,  distributed  either  on  the  man 


CONTROL    OF    LABOR  345 

or  the  machine,  equals  $1.50  a  day.  The  material 
required  for  the  ten  units  costs  $7.50.  While  this  is 
purely  a  supposition,  the  proportions  are  typical.  The 
cost  is  $1.80  for  each  piece.  In  the  form  of  a  simple 
equation  the  results  work  out  as  follows: 

Labor  +  Machine  +  Overhead  +  Material  =  Cost 


This  equals  a  piece  rate  of  wages  to  the  workman  of 
30c.  If  he  can  be  induced  to  increase  his  output,  the 
more  he  makes  the  cheaper  becomes  the  cost. 

CASE  II.  —  If  he  earns  $4.50  by  increasing  his  output 
by  one  half,  the  cost  per  unit  of  product  drops  to  $1.55. 

Labor  +  Machine  +  Overhead  +  Material  =  Cost 
$-i         +    $0.75    =$1.55 


CASE  III.  —  If  he  earns  $6.00  by  doubling  his  output 
the  cost  drops  to  $1.421/£. 

Labor  +  Machine  +  Overhead  +  Material  =  Cost 
,0.30+    ?ff    +     «y°    +    J0.75    =$1.42* 

CASE  IV.  —  If,  however,  he  cannot  be  induced  to  ex- 
ert himself  except  by  a  higher  piece  rate,  say  35c  each, 
it  will  still  be  real  economy  to  allow  it.  Though  the 
workman  would  earn  the  high  wages  of  $5.25  and 
$7.00  per  day,  the  original  cost  of  $1.80  would  have 
fallen  to  $1.60  and  $1.48£,  respectively. 

CASE  V.  —  Suppose,  in  Cases  II  and  III,  that  in 
order  to  increase  the  output  50  per  cent  it  is  necessary 
to  increase  the  office  force  and  supply  store  room  clerks, 
etc.  This  makes  the  overhead  rise  to  $2.00  a  day.  The 
cost  would,  nevertheless,  drop  to  $1.63^.  and  $1.50, 
respectively. 


346  BUSINESS    MANAGEMENT 

Labor  +  Machine  +  Overhead  +  Material  =  Cost 
$0.35+     ^|?  +     ^     +    $0.75    =  $1.63* 

$0.35+     «fg°  +     ^     +    $0.75    =$1.50 

If,  however,  which  is  the  more  probable  supposition, 
the  rate  is  made  25c  instead  of  35c  the  saving  would 
become  even  more  marked. 

Labor  +  Machine  -f-  Overhead  -f-  Material  =  Cost 
$0.25  +      **£>  +      9^9       +      $0.75    =$1.531 

$0.25  +     »g  +      $-|l°       +      $0.75     =$1.40 

CASE  VI. — Or  suppose  a  bonus  system  is  adopted; 
the  man  continues  at  $3.00  a  day,  but  is  allowed  50 
per  cent  of  the  time  he  saves  as  a  bonus.  This  dis- 
tributes the  cost  as  follows : 

Illustration  (a)  where  there  is  a  50  per  cent  increase  in  output. 
Labor  +  Machine  +  Overhead  +  Material  =  Cost 
+     $0.40     +     $0.13£      +     $0.75     =  $1.534 


Illustration  (b)  where  there  is  a  doubled  output,  $3-00+$L5°  =  $0t2^  per 

piece. 

Labor  +  Machine  +  Overhead  +  Material  =  Cost 
+     $0.30     +      $0.10      +     $0.75     =$1.374 


It  will  be  noticed  that  the  machine  and  overhead 
charges  are  constant,  irrespective  of  output.  If  a  $3.00 
a  day  man  idles  for  half  an  hour  the  loss  is  not  the  18c 
he  receives,  but  the  $7.50  -r- 16  =  45c  loss  in  machine 
and  overhead.  If  the  man  is  on  piece  rate,  there  is  no 
loss  in  wages  when  he  slows  up,  but  the  45c  machine 
cost  is  still  there. 

140.  Special  factors  influencing  wages. — The  amount 
of  increase  of  wages  over  the  customary  wage  scale 
necessary  to  induce  a  man  to  appreciate  his  job  and 
take  care  of  it  must  be  found  by  trial.  If  it  is  not 

m 

ample,  the  men  will  decline  "to  be  worked"  as  they 


CONTROL    OF    LABOR  347 

express  it,  and  the  plan  fails.  If  it  is  too  much,  the 
men  become  irregular  and  in  many  cases  dissipated.  It 
has  been  found  that  it  is  not  well  to  let  the  average 
workman  increase  his  earnings  too  rapidly.  If  the 
happy  medium  is  attained  he  becomes  steadier,  lives 
better  and  accumulates  property.  The  proper  rates  of 
increase  given  by  Mr.  F.  W.  Taylor  are: 

Light  work  calling  for  no  special  fatigue  such  as 
ordinary  shop  practice — 30  per  cent. 

Ordinary  labor  calling  for  strength  and  severe  bodily 
exertion  and  fatigue — 50  to  80  per  cent. 

Special  skill  or  brains  with  close  application  but  re- 
quiring no  bodily  exertion — 70  to  80  per  cent. 

Skill,  brains,  close  application  and  extreme  rack  and 
bodily  exertion  such  as  running  a  steam  hammer — 80 
to  100  per  cent. 

Other  industrial  engineers  agree  approximately  on 
these  increases  and  Mr.  Taylor  pertinently  remarks 
that  they  are  not  quantities  to  be  theorized  over  by 
boards  of  directors,  but  are  facts  determined  by  costly 
experiments. 

The  workman  is  interested  in  his  total  day's  pay  and 
not  the  unit  in  which  it  is  figured.  The  standard  illus- 
tration of  this  is  the  case  of  the  ore  shovelers  at  the 
Bethlehem  Steel  Works.  They  were  paid  3.2c  per 
ton  for  unloading  iron  ore  from  cars.  Pittsburgh 
companies  were  paying  4.9c  per  ton  for  the  same  work. 
Hearing  of  this  the  Bethlehem  gang  all  quit  and 
went  to  Pittsburgh.  The  conditions  there,  however, 
were  such  that  they  could  not  maintain  their  output, 
and  their  total  earnings  fell  off.  Within  four  weeks 
the  entire  gang  was  back  at  Bethlehem,  glad  to  work 
at  the  lower  rate,  since  their  total  earnings  were  greater. 

The  wage  system  must  be  so  drawn  that  the  self  in- 


348  BUSINESS    MANAGEMENT 

terest  of  the  workman  and  company  interest  will  cor- 
respond. There  should  be  no  confusion  of  the  issue  with 
hypocritical  sentiment.  Both  the  boss  and  the  work- 
man are  working  for  their  own  interests ;  and  they  work 
together  because  they  can  thus  best  further  their  own 
ends.  The  simplest  way  to  get  a  man  to  exert  himself 
is  to  make  it  his  personal  interest  to  do  so.  Each  man 
must  be  treated  as  an  individual  and  rewarded  in  pro- 
portion to  his  individual  exertions. 

141.  Wages  the   chief  incentive. — The   amount   of 
money  paid  a  man  for  his  work  is  more  important  from 
the  manager's  point  of  view  of  business  policy  than  the 
actual  payment  which  may  embrace  many  things  beside 
money,  for  example,  free  lunches,  use  of  gymnasium, 
libraries,  etc.    But  the  money  a  laborer  receives  is  his 
to  do  with  as  he  pleases.    It  is  this  bit  of  absolute  pos- 
session that  appeals  to  every  man.     Therefore,  it  is  a 
wise  manager  who  lets  as  much  of  his  labor  policy  show 
in  the  wages  envelope  as  possible.    It  was  this  knowl- 
edge of  human  nature  that  led  Napoleon  to  counsel  his 
brother  Joseph,  "The  first  thing  to  be  done  is  to  allow 
no  arrears  in  the  pay  of  your  forces."    For  a  manager 
to  put  in  industrial  betterments,  medical  service,  etc., 
etc.,  before  he  has  worked  out  a  satisfactory  wage  sys- 
tem is  simply  to  waste  his  efforts. 

142.  Importance  of  short-period  records. — Men  love 
independence    and    real    cash    gives    it.      But    having 
established  a  working-wage  system  it  is  well  to  apply 
all  the  aids  available  to  stimulate  the  laboring  force  to 
high  endeavor.    Modern  psychology  is  furnishing  many 
suggestions   along  this  line.     Among  them   are  two, 
worthy  of  special  mention. 

Trainers  of  bicycle  riders  discovered  that  the  records 
made  when  riding  against  time  were  poorer  than  when 


CONTROL    OF    LABOR  349 

the  man  was  accompanied  by  a  pace  maker.  More  than 
that  he  showed  less  exhaustion  when  making  the  paced 
record  than  when  riding  more  slowly.  The  presence 
of  the  pace  maker  did  it.  Man  needs  society  to  do  his 
best  work  and  if  he  has  some  means  of  comparing  his 
accomplishments  at  different  stages  with  a  known 
standard  he  can  call  on  his  reserve  forces  without  the 
same  fatigue  which  goes  with  a  solitary  performance 
and  a  slight  knowledge  of  the  progress  he  is  making. 
The  ultimate  goal  is  usually  too  far  to  offer  the  stimulus 
necessary  to  high  accomplishment.  This  principle  has 
been  applied  by  some  managers  in  allowing  their  bosses 
to  post  a  record  from  time  to  time  during  the  working 
day  showing  each  man  just  what  he  is  accomplishing. 

The  effect  of  a  record  of  this  kind  has  been  measured 
in  the  laboratory  upon  a  university  athlete  and  it  shows 
that  great  gains  in  endurance  are  made  without  evil 
effects.  A  college  man  was  set  the  task  of  testing  the 
strength  of  his  hand  by  gripping  a  contrivance  which 
registered  the  force  exerted  as  he  opened  and  shut  his 
hand.  His  first  set  of  performances  were  completed 
with  absolute  exhaustion.  Later  on  under  exactly 
similar  circumstances  he  was  given  another  test,  but  now 
he  was  provided  with  a  record  of  each  effort  showing 
just  how  much  he  exceeded  or  fell  below  his  previous 
record  at  that  point.  The  result  showed  that  this  extra 
stimulation  raised  his  efficiency  over  33  1-3  per  cent. 

The  best  example  in  business  of  capitalizing  this 
spirit  of  competition  or  emulation  inherent  in  all  men 
is  seen  in  Mr.  Gilbreth's  methods  of  handling  his  brick- 
layers. At  regular  periods  the  accomplishment  of  each 
man  was  posted  alongside  of  the  standard  requirements. 

143.  Pleasurable  surroundings. — Another  psycho- 
logical factor  that  plays  an  important  part  in  the 


350  BUSINESS    MANAGEMENT 

efficiency  with  which  men  work  is  the  element  of  pleas- 
ure. Buoyant  spirits  and  pleasurable  thoughts  have  a 
decided  effect  on  the  physical  wellbeing  of  man  just  as 
they  have  upon  his  temperament.  The  heart  works 
better  and  the  circulation  of  the  blood  is  more  free. 
The  basis  of  good  nutrition  and  health  is  affected 
directly. 

On  the  other  hand,  fear  contracts  the  blood  vessels 
and  the  flow  of  the  blood  is  checked.  The  close  con- 
nection between  this  mental  state  and  the  physical  con- 
dition is  strikingly  shown  in  the  slang  phrase  "cold 
feet."  Fear  lowers  the  working  ability  of  man.  A 
girl  who  worked  with  her  back  to  the  gangway  beside 
which  her  machine  stood  was  about  to  be  discharged 
because  her  work  was  not  up  to  the  standard  in  quality 
or  quantity.  The  foreman,  however,  decided  to  watch 
her.  He  found  that  every  time  a  truck  or  box  was 
hauled  behind  her  she  involuntarily  started  and  slack- 
ened her  pace.  The  fear  of  passing  trucks  was  the 
cause.  She  was  placed  in  a  quiet  part  of  the  room  and 
there  became  the  most  efficient  employe  in  that  depart- 
ment. 

144.  Chilly  surroundings  develop  fear. — But  if  fear 
causes  "cold  feet,"  the  reverse  of  the  proposition  is  just 
as  true.  The  full  effects  of  warm  and  hygienic  sur- 
roundings are  not  fully  appreciated  until  the  influence 
which  these  things  have  upon  the  mental  condition  of 
the  employes  is  seen.  Warmth  of  body  reduces  the 
tendencies  to  fear  and  dread.  With  these  gone,  sus- 
picion and  conniving  diminish  also.  The  manager's 
problem  of  overcoming  the  "discontents"  of  his  factory, 
shop  and  office  is  thus  in  part  solved. 

This  is  not  offered  as  a  panacea,  but  emphasis  has 
been  put  upon  this  point  because  the  influence  of  in- 


CONTROL    OF    LABOR  351 

dustrial  betterments  upon  the  efficiency  of  the  worker 
would  be  little  indeed  if  it  stopped  with  the  physical 
effects  produced  upon  the  bodies  of  the  men.  The  man 
whistling  at  his  work  is  more  efficient  than  the  same 
man  shivering  over  his  task.  The  philosophy  of  indus- 
trial betterment  rests  on  the  fact  that  the  body  and  the 
mind  act  and  react  in  harmony. 

145.  Stimulating   self-interest. — The   pay   envelope 
does  not  draw  to  itself  all  the  lines  of  self-interest  which 
determine  a  man's  attitude  toward  his  work.    Employes 
are  interested  in  their  records  as  workingmen.    If  a  man 
does  good  work  he  is  stimulated  to  repeat  it  or  to  sur- 
pass previous  efforts  provided    he    is    duly    credited. 
Nothing  is  more  disastrous  to  individual  effort  than  to 
elevate  the  shirk  and  overlook  the  industrious  man.  The 
management  must  use  some  method  whereby  the  in- 
dividual's work  is  not  merged  with  the  mass  and  lost 
sight  of.    But  to  treat  men  individually,  the  work  must 
be  carefully  allotted   and  an  individual  record  kept. 
This  method  has  two  good  effects:     (1)  It  assures  the 
workman  of  a  fair  deal;   (2)   it  becomes  the  basis  of 
eliminating  poor  men.    The  manager  can  keep  tab  on 
his  foreman's  appointments,  and  thus  assure  the  work- 
man that  his  work  is  constantly  under  review  in  the 
head  office.     If  the  manager  or  superintendent  wishes 
to  take  advantage  of  this,  he  can  refer  to  these  records 
and  whenever  he  sees  an  opportunity    to    praise    an 
employe  he  can  walk  through  the  shop  or  office  and  by 
casually  greeting  the  man  and  referring  to  the  par- 
ticular praiseworthy  accomplishment  he  can  in  time 
bind  all  the  good  men  to  him  in  interested  loyalty. 

146.  Checks  against  injustice. — Furthermore,  work- 
men's records  become  vital  aids  in  helping  to  do  away 
with  jealousies  and  injustices  attendant  on  promotions. 


352  BUSINESS    MANAGEMENT 

It  forces  the  foremen  to  depend  upon  some  other  prin- 
ciple than  consanguinity,  the  "soft-soap  grip,"  or  petty 
tribute,  in  making  promotions.  They  know  that  their 
recommendations  must  stand  the  test  of  recorded 
efficiency.  A  manager  who  suspects  his  foremen  of 
"playing  favorites"  can  compare  their  recommendations 
with  the  records  of  other  men  entitled  to  consideration. 
Without  removing  the  foreman's  power  of  promoting  a 
man  he  can  call  him  to  the  office  and  say,  "Smith,  I 
understand  there  is  to  be  a  vacancy  in  your  depart- 
ment." "Oh!  Yes,"  says  Smith.  "Well,"  says  Mr. 
Manager,  "we  have  several  good  men  down  there;  let 
us  look  over  their  records."  Now  the  manager  knows 
that  Smith  intended  to  recommend  a  worthless  cousin 
for  the  job.  Such  an  appointment  would  hurt  the 
discipline  of  the  department  as  well  as  cripple  its  pro- 
ductive efficiency.  But  he  does  not  want  to  curtail  the 
power  of  his  foreman.  So  they  look  over  the  record 
cards  of  the  men.  The  cousin's  record  stands  out  in 
bold  contrast  to  that  of  the  good  men  working  by  his 
side  who  know  how  incapable  he  is  and  of  his  relation- 
ship to  the  boss. 

The  manager  does  not  counsel  his  foreman,  but  the 
latter  knows  that  he  will  be  held  responsible  for  this 
appointment.  If  he  were  willing  to  take  the  responsi- 
bility, the  manager  could  not  object  until  the  result  of 
the  foreman's  appointment  showed  in  the  foreman's 
record.  Smith  does  not  recommend  his  "cousin"  for  the 
position  and  every  man  in  the  department  is  stimulated 
to  do  better  work  because  he  feels  he  is  going  to  be 
judged  by  his  record  and  get  a  fair  deal. 

147.  Elimination  of  the  unfit. — The  second  use  to 
which  a  record  may  be  put  is  the  gradual  elimination  of 
the  inefficient  and  increasing  of  the  permanent  staff.  It 


CONTROL    OF    LABOR  353 

substitutes  exact  data  for  impressions  and  other  in- 
tangible influences  where  men  are  to  be  laid  off.  On 
this  point  Mr.  Gantt  says: 

Some  years  ago  it  became  necessary  to  lay  off  about  ten 
molders  in  a  foundry.  The  superintendent  sent  for  the  record 
of  the  men  and  made  up  a  list  of  men  to  be  laid  off.  There  was 
great  complaint,  in  which  the  foreman  joined,  that  the  wrong 
men  had  been  selected  and  that  some  of  these  men  were  the  best 
workers  in  the  shop.  The  superintendent  invited  an  inspection 
of  the  records,  which  the  foreman  had  never  been  willing  to  pay 
any  attention  to  before,  with  the  result  that  everybody  was 
satisfied  and  the  efficiency  of  those  remaining  soon  showed  a 
very  marked  improvement. 

148.  A  typical  case  of  the  use  of  records. — It  is  per- 
haps natural  that  the  railroads  should  be  foremost  in 
developing  systems  of  discipline  for  their  employes. 
Slackness  in  railroad  operation  may  result  in  death, 
as  well  as  in  loss  of  profits.  The  old  system  of  discipline 
by  suspension  from  duty  has  been  quite  generally  dis- 
placed by  the  system  of  "discipline  by  records." 

President  H.  H.  Vreeland  in  describing  this  system 
as  applied  to  the  Metropolitan  Street  Railway  Com- 
pany, which  employs  15,000  men,  said  that  the  whole 
force  practically  renewed  itself  every  two  years  before 
the  new  methods  were  adopted.  There  were  not  fifty 
men  who  had  been  with  the  company  five  years.  Divi- 
sion superintendents  could  discharge  men  whom  they 
had  never  seen  and  the  idea  that  a  man  might  offer  a 
defense  never  suggested  itself.  No  account  was  kept 
of  a  man's  discharge  and  he  might  be  hired  again  in  a 
few  days.  Soon  after  the  record  system  was  installed 
improvement  in  the  conduct  of  the  men  became  marked. 
They  felt  in  closer  touch  with  the  management  and 
knew  that  all  had  an  equal  chance,  for  although  their 

11—23 


354.  BUSINESS    MANAGEMENT 

errors  were  noted  they  knew  their  virtues  were  recorded 
as  well. 

149.  Look  for  the  particular  bent  of  the  business.— 
Every  business  has  a  bent  peculiar  to  itself.    The  atti- 
tude  of  the   laboring   force   is   controlled  by   it.     A 
method  of  control  to  be  effective  must  conform  to  it. 

For  example,  the  superintendent  of  a  large  screw 
works  found  difficulty  in  getting  the  children  who  sorted 
the  screws  to  do  a  fair  day's  work.  Various  modifica- 
tions of  piece  and  day  work  wage  systems  were  unsuc- 
cessful. Finally  he  hit  upon  the  thing  peculiar  to  his 
shop.  He  found  the  children  were  not  interested  in 
their  wages.  These  they  surrendered  to  their  parents. 
Accordingly,  he  dropped  the  "envelope  idea"  and  as- 
signed each  child  a  daily  task  which  when  finished  would 
permit  him  to  go  home.  This  plan  succeeded  at  once. 
The  play  time  of  the  children  was  their  own  and  they 
prized  it  highly. 

Another  concern  found  it  necessary  to  break  away 
from  the  usual  methods  of  paying  its  salesmen  a  com- 
mission on  the  basis  of  their  total  sales.  In  order  to 
induce  them  to  maintain  prices  and  to  push  the  more 
profitable  lines  the  salesmen  were  paid  a  commission  on 
the  profits  of  their  orders. 

The  John  B.  Stetson  Company  discovered  itself  to 
be  the  victim  of  a  peculiar  custom  which  afflicted  its 
sizing  department.  The  employes  here  soon  changed 
their  occupation  and  it  was  hard  to  keep  a  steady  force. 
They  met  the  situation  by  a  careful  study  of  the  effect 
of  increased  pay  in  the  form  of  a  bonus.  In  1897  the 
company  offered  the  man  who  worked  steadily  through- 
out the  year  5  per  cent,  of  his  total  year's  wages  as  a 
Christmas  present.  Thirty-five  per  cent  of  the  men 
stuck  to  their  jobs.  For  the  three  succeeding  years  the 


CONTROL    OF    LABOR  355 

premium  was  increased  to  10  per  cent  and  the  number 
of  steady  workers  rose  from  35  per  cent  to  80  per  cent. 
In  1901  the  bonus  went  up  to  15  per  cent  and  the  per- 
manent men  increased  to  88  per  cent.  Finally  a  20 
per  cent  bonus  brought  the  permanent  force  up  to  99 
per  cent.,  where  it  now  remains. 

150.  Permanency  of  employment  and  pensions. — 
The  readiness  with  which  a  skilled  mechanic  will  some- 
times leave  his  trade  in  which  he  can  earn  $5.00  a  day 
to  enter  an  office  at  $75.00  per  month  shows  how  strong 
is  the  element  of  permanency  in  a  job.  Small  com- 
panies often  compete  favorably  for  labor  with  bigger 
firms  because  they  take  care  of  their  workingmen 
during  slack  times.  The  power  to  discharge  a  man  as 
a  matter  of  discipline  in  some  large  concerns  is  only 
resorted  to  in  exceptional  cases.  The  Pennsylvania 
Railroad  Company's  records  show  that  1,350  active 
employes  have  been  with  the  company  forty  years  or 
more;  besides  there  were  an  additional  1,013  men  who, 
having  served  over  forty  years,  had  retired  on  pen- 
sions. 

So  strong  has  the  idea  of  stability  of  employment 
grown  of  late  years  that  hundreds  of  big  corporations 
have  adopted  some  form  of  pension  system.  By  this 
means  they  hope  to  increase  the  attractiveness  of  the 
work  to  their  men.  Many  kinds  of  old  age  pensions 
have  been  formulated  but  the  commonest  forms  are 
those  which  provide  for  the  retirement  of  the  employe 
after  a  certain  number  of  years'  service  in  the  company, 
or  at  a  specified  age.  The  amount  of  the  pension  is 
based  on  a  stated  percentage  of  the  average  income  of 
the  recipient  covering  a  period  of  years  just  previous 
to  his  retirement.  Another,  though  less  common, 
method  is  the  payment  of  fixed  sums  instead  of  an 


356  BUSINESS    MANAGEMENT 

amount  figured  on  the  actual  time  of  service.  The 
Metropolitan  Street  Railway  Company  uses  this  form 
of  pensioning  its  men. 

The  Pennsylvania  Railroad  Company  was  the 
pioneer  in  establishing  a  pension  system.  Their  system 
was  the  result  of  an  elaborate  investigation  of  the  ex- 
perience of  foreign  railroad  corporations.  Several 
arrangements  were  considered  and  the  best  finally 
adopted.  Since  its  introduction,  January  1,  1900,1  it 
has  been  a  model  which  both  railroad  and  industrial  or- 
ganizations have  followed.  The  International  Harves- 
ter Company,  for  instance,  has  copied  it  almost 
verbatim.  President  Cassatt  described  it  fully  in  his 
original  announcement. 

151.  Hope  of  advancement  as  a  stimulus. — So  strong 
is  the  desire  of  most  young  Americans  to  advance,  that 
many  concerns  make  a  practice  of  holding  out  glowing 
possibilities  to  ambitious  men,  and  at  the  same  time 
expect  them  to  work  for  very  small  wages.  Where  the 
firm  is  sincere  in  its  promises  no  employe  will  complain, 
but  it  is  nothing  more  than  stealing  or  obtaining  serv- 
ices under  false  pretenses  to  get  the  best  out  of  an 
ambitious  man  and  then  let  him  go  when  he  can  be 
deceived  no  longer. 

One  has  only  to  run  through  the  list  of  "situations 
wanted"  in  a  morning  paper  to  see  how  prevalent  is 
the  desire  of  employes  to  sacrifice  money  returns  if  only 
steady  advancement  is  assured.  Out  of  a  total  of  1,129 
situations  wanted  in  one  paper,  over  12  per  cent  of  the 
applicants  emphasized  the  "future."  In  another  paper, 
14  per  cent  of  the  "commercial  help  wanted"  ads  re- 
ferred to  "chances  of  advancement." 

"Don't  go  outside  to  fill  a  vacancy  if  you  can  help 

1  See  U.  S.  Dept.  of  Labor  Bulletin,  vol.  6,  1901,  page  1090. 


CONTROL    OF    LABOR  357 

it,"  is  a  policy  now  generally  accepted  as  the  best. 
However,  strict  seniority  is  apt  to  drive  out  the  men  of 
force  and  initiative.  Accordingly,  some  firms  have 
broken  into  the  practice  of  strict  seniority  by  confining 
its  application  chiefly  to  the  minor  positions,  the  higher 
offices  being  quite  free  from  its  influence. 

152.  Three  examples  of  promotion  policies. — The 
Pennsylvania  Railroad  has  laid  out  its  line  of  promo- 
tion very  clearly.  Out  of  160  principal  officers,  150 
started  in  the  ranks.  The  ten  exceptions  are  all  in  the 
legal  departments  or  in  lines  of  work  calling  for  special 
experience  not  obtainable  in  the  organization.  The  61 
principal  officers  of  the  operating  department,  all  of 
them  from  the  general  manager  down,  started  as  begin- 
ners. Most  of  the  men  are  hired  young  with  a  view 
to  their  eventually  assuming  responsible  positions. 
When  first  taken  on  they  are  put  through  a  regular 
course  of  training  which  makes  them  familiar  with  all 
phases  of  the  work  of  the  department  they  may  enter- 
traffic,  operating,  or  maintenance  of  way.  After  this 
preliminary  training,  there  is  a  set  line  of  promotion 
through  which  they  must  advance.  In  the  maintenance- 
of-way  department,  for  instance,  after  finishing  their 
training,  the  beginners  become  track  laborers,  road 
men  or  assistants  in  engineering  corps.  When  they 
have  become  familiar  with  all  the  ins  and  outs  of  track 
construction  and  maintenance  they  are  made  assistant 
supervisors,  assistant  engineers,  principal  assistant- 
engineers  and  superintendents,  being  promoted  in  the 
order  named.  The  company  not  only  believes  that  this 
system  is  necessary  for  the  proper  perpetuation  of  its 
organization,  but  that  it  produces  the  best  results  and 
greatest  efficiency.1 

1  System,  August,  1910,  page  150. 


358  BUSINESS    MANAGEMENT 

The  J.  W.  Butler  Paper  Company  will  not  put  an 
outsider  into  a  responsible  position,  even  though  it 
might  find  a  man  for  the  time  being  more  capable  than 
some  individual  in  the  firm.  Mr.  J.  F.  Butler  says  in 
explaining  this  policy: 

We  do  not  call  in  an  experienced  man  from  outside  although 
it  may  cost  us  considerable  to  train  one  of  our  men  for  the 
position,  but  we  invariably  do  it,  and  it  pays  when  you  balance 
this  one  expense  against  the  increased  loyalty  and  efficiency 
we  secure  from  hundreds  of  employes.  It  gives  an  employe 
a  hope  for  something  better;  it  spurs  him  on  to  put  himself 
in  line  for  the  next  vacancy;  it  holds  him  to  the  house.1 

The  Crane  Company  of  Chicago  have  even  held  a 
new  line  of  work  in  abeyance  until  they  could  develop 
men  to  handle  it.  Mr.  Richard  R.  Crane  says : 

Enlightened  self-interest  is  in  fact  the  essential  bond  of  any 
organization.  Mere  appeal  to  sentiment  counts  for  nothing. 
An  employe  is  one  with  the  house  only  when  it  affords  him 
the  best  opportunity  to  coin  his  talents  into  dollars  and  cents 
and  insures  him  of  permanent  employment.  Even  the  appren- 
tices we  take  into  the  shops  are  not  held  by  formal  contract. 
As  a  matter  of  fact,  they  usually  stay,  and  virtually  all  our 
department  heads  and  managers  learned  their  trade  with  us 
or  began  as  messengers.  The  certainty  of  advancement  if 
they  desire  it  is  a  stronger  incentive  to  steadiness  and 
efficiency  than  any  formal  contract  could  be.2 

153.  Selecting  the  "right  stripe/'— The  employer  of 
labor  is  more  and  more  inclined  to  select  men  for  their 
qualities  rather  than  for  their  experience.  If  an  appli- 
cant has  ability  and  willingness  to  work  he  can  be 
taught  what  to  do,  whereas  laziness,  dishonesty  or 
wrong  prejudices  will  inhibit  the  best  experience. 

1  System,  August,  1910,  page  150. 

2  Ibid.  Sept.,  1909. 


CONTROL    OF    LABOR  359 

In  determining  an  applicant's  fitness,  every  employer 
of  labor  should  have  certain  standards  by  which  he 
forms  his  opinion  before  selecting  them.  These  stand- 
ards should  involve  an  understanding  of  the  require- 
ments of  the  situation,  a  knowledge  of  the  aptitudes, 
abilities,  interests,  ambitions,  resources  and  limitations 
of  the  applicant;  also  careful  consideration  of  the  re- 
lationships of  these  two  groups  of  facts. 

In  view  of  the  importance  which  the  average  em- 
ployer attaches  to  experience  the  following  lists  are 
very  significant.  One  comes  from  an  expert  in  the 
selling  field,  Mr.  Hugh  Chalmers,  president  of  the 
Chalmers  Motor  Company;  the  other  from  an  authority 
in  production,  Mr.  F.  W.  Taylor,  the  famous  engineer. 
Not  more  than  one  quality  in  each  list  refers  to  experi- 
ence or  business  training.  All  the  others  are  inherent 
in  the  men: 

HUGH  CHALMERS 

1.  Health. 

2.  Honesty. 

3.  Ability. 

4.  Initiative. 

5.  Knowledge  of  business, 

6.  Tact. 

7.  Industry. 

8.  Open-mindedness. 

9.  Sincerity. 
10.  Enthusiasm. 

F.  W.  TAYLOE 

1.  Health. 

2.  Honesty. 

3.  Brains. 


360  BUSINESS    MANAGEMENT 

4.  Grit. 

5.  Special    knowledge,    manual     dexterity,     or 

strength. 

6.  Tact. 

7.  Energy. 

8.  Judgment. 

9.  Education. 

The  employer  may  be  greatly  helped  in  choosing  his 
men  if  he  makes  out  a  similar  list  of  the  prime  char- 
acteristics which  his  own  experience  has  shown  him  to 
be  necessary  in  his  business.  With  this  list  before  him 
he  can  mentally  check  up  the  applicant,  and  feel  sure 
that  he  has  not  let  some  essential  slip  by  unnoticed.  Mr. 
Chalmers'  testimony  may  be  helpful  along  this  line: 

When  I  was  working  as  a  salesman  myself  I  was  always  try- 
ing to  analyze  successful  men  to  find  out  the  reason  for  their 
success.  Later  when  I  became  sales  manager  and  had  to 
employ,  train,  and  supervise  men  I  had  these  (ten)  requisites 
put  on  a  blackboard  in  my  office,  and  I  used  them  for  meas- 
uring men,  for  discovering  their  weak  spots,  and  I  have  always 
found  them  very  helpful. 

154.  Make  a  man  analyze  himself. — Besides  the  in- 
formation which  a  manager  of  labor  gathers  from 
observation,  there  is  much  to  be  gained  from  a  proper 
self -analysis  carried  on  by  the  applicant  himself.  Al- 
though the  man's  estimation  of  himself  may  be  wrong, 
nevertheless  the  manager  will  see  the  problem  from  a 
different  angle  and  many  a  characteristic  will  disclose 
itself  even  where  the  applicant  has  attempted  to  cover 
it  up.  The  following  questions  prepared  by  Mr.  Gus- 
tav  A.  Blumenthal  are  suggestive  of  what  may  be  done 
along  this  line: 


CONTROL    OF    LABOR  361 

Where  born?    .  C.<\  .'  ;  .................................. 

Is   father  living?.  .  j  .£.$.  .  .  .  .His  occupation?.  .^.^.^.  .h  A.^^.  . 
Is  your  health  good?.  X.fcA  .  .     If  not,  what  is  your  trouble? 


What  exercise  do  you  take?.      :^V.\.  .^AV.    i 

Are  you  fond  of  sports?  ......  If  so,  which? 

'  -- 


What  schooling  have  you  had? 


* 


What  are  your  favorite  studies?.  . 
In  what  studies  are  you  weak? 

What  kind  of  reading  have  you  done? 

Are  you  following  a  definite  line  of  reading  or  study  now? 

If  so,  what  ? 

Do  you  sing?.  .  •.-• Play  on  any  instrument?. 

Have  you  a  hobby? If  so,  what? 

Does   your  mind   concentrate,   or   skip   from   one   thought   to 

another?     

Have  you  self-confidence? Patience? 

Are  you  inclined  to  be  lazy  ?  ,\S .  Do  you  act  impulsively  ? .  .  .  . 

Do  you  make  friends  easily? Are  you  fond  of  company? 

Are  you  sensitive  ? Are  you  inclined  to  think 

yourself    misunderstood? 

How  do  you  spend  your  leisure  time  ? 

What  are  your  pleasures  ? 

What  habits  or  vices  do  you  have  to  fight  down  in  yourself? 

Are  your  thoughts  clean? Can  you  trust  yourself? 

Do  you  consider  yourself  absolutely  honest? 

Trustworthy? Conscientious? 

What  is  your  religion?    

Are  you  a  church  member  ? 

Are  you  self-supporting? Can  you  save  money? 

How  many  depend  upon  you  for  support? 


362  BUSINESS    MANAGEMENT 

Indicate  the  different  occupations  you  have  followed: 

Occupation:  How  long  in  it?      How  did  you  like  it? 


What  life  do  you  think  you  would  prefer? 

What  training  or  special  fitness  have  you  had  for  this  work? 

What  is  your  present  occupation? 

Do  you  like  it? Why? 

Do  you  aspire  to  be  an  employer  of  men? 


What   is   your   greatest  ambition? 


Are  you  willing  to  pay  the  price  in  hard  work  to  attain  suc- 
cess?     

When  the  applicant  has  filled  out  the  above  blanks 
the  employer  may  classify  the  information  under  the 
following  headings:  Mental  characteristics;  physical 
characteristics;  moral  and  social  characteristics;  abili- 
ties and  talerits;  vocation  in  which  success  may  be  rea- 
sonably expected ;  courses  of  study  and  hobby  advisable. 

155.  Use  of  written  and  oral  tests. — The  oldest 
method  of  determining  fitness  is  the  written  or  oral 
examination,  but  little  use  has  been  made  of  it  in  the 
business  world.  However,  the  Chicago  and  North- 
western Railway  has  a  system  of  progressive  examina- 
tions running  through  three  years. 

Each  fireman  is  given  the  first  year's  book  of  ques- 
tions, the  company's  book  of  rules  and  a  time  card 
when  he  is  employed.  As  soon  as  convenient  after  the 
expiration  of  his  first  year's  service  he  is  given  a  writ- 
ten examination  thereon  by  the  traveling  engineer  or 


CONTROL    OF    LABOR 

traveling  fireman,  who  also  examines  him  orally.  If 
successful  in  passing  this,  he  is  given  the  second  year's 
book  of  questions  upon  which  he  is  examined  a  year 
hence  in  the  same  manner.  At  the  end  of  his  third  year 
the  fireman  is  examined  by  a  joint  board  of  examiners 
appointed  for  the  whole  system,  which  board  sits  in 
Chicago  each  spring  and  fall.  Some  of  the  traveling 
engineers  and  the  airbrake  instructors  compose  this 
board  and  their  favorable  report  makes  the  man  eligible 
to  promotion  to  the  position  of  engineer  whenever 
needed  as  such  on  his  own  division. 

The  failure  to  pass  any  one  of  these  progressive  ex- 
aminations results  in  a  second  trial  six  months  later; 
two  successive  failures  drop  a  man  from  the  locomotive 
service  at  once.  No  man  is  permitted  to  waive  his  right 
to  promotion. 

156.  Testing  for  physical  and  moral  fitness. — Little 
need  be  said  about  the  necessity  for  discovering  a  man's 
physical  and  moral  qualities.  The  methods  employed  in 
obtaining  data  for  physical  fitness  lie  largely  in  the 
province  of  the  physician  and  many  business  houses  em- 
ploy physicians  for  this  purpose.  But  the  testing  for 
moral  qualities  is  a  comparatively  new  feature  in  busi- 
ness management.  The  usual  procedure  is  to  "size  up  a 
man,"  but  so  many  mistakes  are  likely  to  happen  in 
using  surface  appearances  as  the  basis  of  judgment, 
that  business  men  are  demanding  a  more  intimate 
analysis  of  their  employes'  character.  They  are  be- 
ginning to  recognize  that  the  most  desirable  qualities, 
such  as  conscientiousness  and  loyalty,  are  less  in  evi- 
dence than  initiative  and  polish,  and  while  good  clerks 
and  mechanics  may  possess  all  of  these  qualities  they 
may  lack  the  knack  of  personal  salesmanship. 

Difficult  as  it  is,  the  problem  of  placing  the  right 


364  BUSINESS    MANAGEMENT 

man  in  the  right  place  is  being  successfully  solved  for 
continuously  increasing  numbers  of  men  and  women. 

157.  Control  by  education. — Business  managements, 
like  political  governments,  are  coming  to  realize  that 
the  basis  of  control  must  rest  finally  on  education.  The 
tendency  to  adopt  this  point  of  view  is  indicated  by 
the  following  examples : 

The  New  York  Edison  Company  offers  educational 
facilities  through  an  Educational  Bureau  and  the  Edu- 
cational Committee  of  the  Association  of  Employes. 
The  committee  prepares  technical  and  accounting 
courses  in  which  the  attendance  is  voluntary.  The  Ed- 
ucational Bureau  prepares  the  commercial  courses  and 
part  of  the  routine  work  of  the  commercial  depart- 
ment, and  instruction  is  given  on  the  company's  time. 

The  commercial  courses  include  hygiene,  health  and 
recreation;  the  basic  principles  of  salesmanship;  com- 
pany organization ;  the  elements  of  central  station  busi- 
ness-getting; and  the  fundamental  principles  of  elec- 
tricity. The  school  staff  consists  of  a  manager,  instruc- 
tor in  charge  and  secretary.  The  term  begins  in  Octo- 
ber and  closes  in  May.  The  work  covers  two  years. 

The  technical  courses  consist  of  laboratory  exercises 
preceded  by  a  talk  in  which  the  instructor  outlines  the 
work  briefly.  Students  are  rated  on  their  work.  Prizes 
are  offered  to  those  having  the  highest  standing.  The 
course  lasts  15  weeks — five  evenings  and  one  afternoon 
each  week. 

The  accounting  course  was  offered  for  the  first  time 
during  the  year  1912-13.  It  consists  of  a  series  of  lec- 
tures by  a  professional  teacher. 

Besides  these  courses,  the  company  has  lectures  given 
by  their  officials  or  by  prominent  speakers  on  general 
and  public  policy,  etc.,  and  on  technical  subjects. 


CONTROL    OF    LABOR  365 

The  Metropolitan  Life  Insurance  Company  has  a 
course  in  business  English.  It  consists  of  thirty  weekly 
lessons  in  grammar,  composition  and  business  letter 
writing.  A  fee  of  $3.00  is  charged.  There  are  also 
classes  in  stenography  and  typewriting.  The  company 
maintains  a  circulating  library  of  general  literature, 
science,  etc.  In  July,  1912,  there  were  6,729  books  and 
pamphlets  for  use  of  the  employes.  The  total  mem- 
bership of  the  library  is  2,605.  There  is  an  average 
daily  circulation  of  one  hundred  and  seven  books.  A 
trained  librarian  and  three  assistants  are  in  charge. 

The  National  Metal  Trades  Association  is  lending  its 
support  to  institutions  which  are  teaching  courses  along 
industrial  lines.  For  instance,  in  Chicago  it  cooperates 
with  the  Lewis  Institute;  in  Cincinnati,  with  the  Con- 
tinuation School  and  Cooperative  High  School  as 
well  as  the  University ;  and  in  Cleveland  with  the  Tech- 
nical High  School  and  Young  Men's  Christian  Asso- 
ciation. 

In  Hartford,  Conn.,  the  public  school  authorities 
have  started  a  Continuation  School  to  which  the  mem- 
bers of  the  Metal  Trades  Association  will  send  their 
apprentices.  In  St.  Louis,  members  are  working  with 
the  Rankin  Trade  School  where  the  apprentices  are 
making  gratifying  progress.  In  Indianapolis  a  com- 
mittee of  the  Association  equipped  certain  buildings  of 
the  Winona  Technical  Institute  with  machinery,  and 
furnished  scholarships  of  the  value  of  $100.00  each  for 
prospective  students.  The  committees  solicited  contri- 
butions of  equipment  and  scholarships  from  members 
of  the  Metal  Trades  Association. 

The  American  Bankers'  Association  has  a  section 
called  the  American  Institute  of  Banking.  Its  pur- 
poses are  to  educate  bankers  in  their  special  lines,  to 


366  BUSINESS    MANAGEMENT 

maintain  a  standard  of  education  by  official  examina- 
tions and  to  issue  certificates  for  the  accomplishment  of 
certain  work.  It  has  12,000  members  organized  into  75 
chapters  in  the  principal  cities  of  the  country  and  in 
Cuba  and  Hawaii.  Employes  of  country  banks  are  en- 
rolled as  correspondence  students.  The  course  of  study 
covers  the  theory  and  practice  of  banking  and  allied 
principles  of  law  and  economics.  The  course  requires 
at  least  100  hours  of  class  and  correspondence  work 
under  approved  teachers. 

Spencer  Trask  &  Company  of  New  York  City,  one 
of  the  largest  bond  investment  houses  in  New  York, 
gives  a  course  of  instruction  covering  financial  organi- 
zation. It  requires  its  employes  to  study  corporation 
finance,  foreign  exchange,  the  money  market,  theory  of 
investments  and  analysis  of  current  security  fluctua- 
tions, speculation  and  the  stock  market.  Their  men  are 
also  required  to  pass  examinations  on  political  economy, 
money  and  credit,  and  the  principles  of  salesmanship. 

The  National  City  Bank  of  New  York  provides 
classes  in  business  correspondence,  French,  German, 
Spanish,  penmanship,  commercial  arithmetic  and  book- 
keeping. These  are  given  as  a  first-year  course  while 
a  more  advanced  course  is  outlined  for  a  second  year  of 
study. 

158.  Special  training  for  the  company's  work. — Some 
firms  try  to  give  their  employes  specific  training  for 
their  own  work.  Classes  are  held  during  work  hours  or 
evenings.  They  are  supplemented  by  lectures  on  vital 
subjects  such  as  hygiene,  sanitation,  diet,  first  aids  to 
the  injured,  and  other  lines.  The  National  Cash  Reg- 
ister Company  has  an  agent's  school  for  salesmen,  one 
for  advertising,  one  for  officers  for  the  study  of  business 
management,  and  others  for  the  foremen,  janitors  and 


CONTROL    OF    LABOR  367 

waiters.  The  same  company  has  a  kindergarten  for  the 
children  of  its  employes,  and  cooking,  sewing,  and  mil- 
linery classes,  realizing  that  training  which  benefits  the 
home  makes  better  workers  all  around.  The  Heinz 
Company  has  cooking  and  sewing  classes  for  its  700 
girls,  most  of  whom  are  immigrants.  The  Williams 
Company  in  Brooklyn  instructs  its  salesmen  and  other 
employes  and  provides  lectures  for  the  foremen.  Many 
companies  provide  libraries  and  reading  rooms  with 
technical  literature  and  popular  fiction  and  magazines. 

Some  firms  distribute  manuals  describing  the  details 
of  the  work.  One  corporation  published  a  200-page 
book  with  cuts  and  reports,  and  gave  one  to  each  em- 
ploye, who  was  supposed  to  read  it  all  with  special  at- 
tention to  the  parts  pertaining  to  his  work.  Quizzes 
are  held  frequently  and  those  who  are  deficient  in  any 
subject  are  dismissed.  The  publication  of  the  book 
cost  $2,000  but  the  company  considers  the  money  well 
invested.  Each  new  man  must  read  the  manual  so  as 
to  get  a  general  understanding  of  the  whole  system. 
The  effect  has  been  good  on  both  old  and  new  workers, 
all  making  fewer  mistakes.  This  makes  it  easier  for 
the  various  departments  to  work  together  harmoniously. 
Each  person  knows  why  he  is  doing  certain  things,  and 
as  a  consequence  has  much  more  interest  in  his  work  and 
greater  enthusiasm.  It  gives  him  some  comprehension 
of  the  part  his  work  plays  in  the  whole  organization. 

Firms  are  realizing  more  and  more  that  definite  in- 
struction saves  a  great  deal  of  time — not  only  for  the 
individual  but  for  the  whole  house.  It  pays  to  develop 
the  ability  of  each  one,  especially  as  really  capable  men 
are  so  scarce.  A  man  may  so  increase  his  capacity  by 
having  favorable  opportunities  as  to  be  a  wonderful 
asset  to  the  company.  The  Simpson,  Crawford  Com- 


368  BUSINESS    MANAGEMENT 

pany  of  New  York  has  an  instruction  room  where  each 
new  clerk  goes  for  a  preliminary  training.  There  are 
four  sessions  of  from  one  to  two  hours  each.  The  idea 
is  to  eliminate  girls  who  are  not  efficient  right  at  the 
start.  The  school  saves  the  company  much  time  as  well 
as  thousands  of  dollars,  for  trade  may  easily  be  driven 
away  by  inefficient  clerks.  Other  stores  follow  the  same 
system. 

The  National  Commercial  Gas  Association  is  con- 
ducting two  correspondence  courses.  Course  No.  1  is 
mainly  along  the  line  of  salesmanship  while  Course  No. 
2  for  the  second  year  is  along  the  lines  of  business  or- 
ganization. The  following  subjects  are  treated: 

Course  No.  1. 

The  Real  Salesman  and  the  Near  Salesman. 
Practical  Personal  Elements  in  Selling  Gas. 
Four  Steps  in  Selling. 
The  Customer's  Attitude  Toward  a  Sale. 
Building  a  Selling  Talk. 
Building  a  Selling  Talk  (continued). 
Turning  Technical  Matter  into  Selling  Points. 
Factory  Illumination — Selling  Gas  on  a  Large  Scale. 
The  Factory  and  the  Store — Selling  Gas  on  a  Large 

Scale. 
Gas  for  Industrial  Purposes. 

Course  No.  2. 

The  Salesman  and  the  Corporation. 
The  Sales  Department  and  the  Organization. 
The  Basis  of  Departmental  Organization. 
Elements  of  Gas  Manufacture. 
Gas  Distribution. 
Accounting. 

Business  Correspondence. 
Credits  and  Collections. 


CONTROL    OF    LABOR  369 

Each  course  covers  a  period  of  ten  months.  One 
pamphlet  each  month  is  sent  out  to  those  enrolled  in 
each  course.  Questions  are  printed  at  the  end  of  the 
lessons  and  the  men  send  in  written  answers  to  the 
director  of  the  courses  which  are  examined,  rated  and 
returned  to  the  individual.  A  certificate  is  issued  upon 
satisfactory  completion  of  the  work. 

Many  of  the  above-mentioned  corporations,  as  well 
as  hundreds  of  other  companies,  are  also  cooperating  in 
the  work  of  the  Alexander  Hamilton  Institute,  which 
need  not  be  here  described, 
n— 24 


CHAPTER   IX 

INDUSTRIAL    BETTERMENT   OR   WELFARE    INSTITU- 
TIONS 

159.  Beginnings  of  industrial  betterment. — Since  the 
first  factory  act  was  passed  in  England  in  1802  at  the 
time  when  the  interests  of  masters  and  workmen  were 
more  closely  allied  because  of  the  small  workshops  and 
old  methods  of  work,  remarkable  improvements  have 
been  made  in  the  whole  civilized  world  pertaining  to  the 
health  and  comfort  of  the  workers  in  all  branches  of  in- 
dustry. By  that  act  only  the  barest  precautions  were 
to  be  taken,  such  as  the  limewashing  of  the  workrooms 
in  a  factory  twice  a  year  and  their  "due  ventilation." 
Hours  of  work  were  to  be  reduced  to  twelve  a  day. 
There  was  no  limit  to  the  age  of  workers,  and  children 
of  6  were  allowed  to  work  with  their  elders  at  the  same 
machinery.  The  act  applied  principally  to  apprentices 
of  cotton  and  woolen  factories.  Provisions  were  made 
for  their  learning  to  read  and  write,  and  they  were 
obliged  to  go  to  church  once  a  month. 

Then  came  the  first  parliamentary  inquiry  in  1816, 
and  medical  men  saw  that  it  was  absolutely  impossible 
for  the  workers  to  retain  their  health  under  the  con- 
ditions in  the  new  factories.  The  inhaling  of  dust  and 
fibre,  the  continual  presence  of  filthy  floors  and  con- 
stant expectoration,  the  lack  of  sufficient  light  and  fresh 
air,  as  well  as  oppressively  long  hours,  were  common  to 
all  the  factories.  In  the  first  half  of  the  Nineteenth 
Century  the  figure  of  the  "woman  in  unwomanly  rags 
plying  her  needle  and  thread  in  poverty,  hunger  and 

370 


INDUSTRIAL  BETTERMENT  371 

dirt,"  as  depicted  in  Hood's  "Song  of  the  Shirt,"  was 
deplorably  common.  But  with  factory  legislation, 
trade  unions,  and  industrial  betterment  undertaken  by 
employers,  conditions  have  changed  in  Europe  and 
America,  until  now  we  have  such  model  factories  as  the 
Cadbury  Chocolate  works  near  Birmingham,  England, 
where  things  are  ideally  healthful  inside,  and  the  em- 
ployes are  given  an  opportunity  to  live  in  a  model  vil- 
lage in  model  houses  situated  in  little  gardens  amid  at- 
tractive shrubbery  and  flowers. 

160.  "Welfare  institutions.3' — About  twenty-five 
years  ago  a  number  of  manufacturing  concerns  in  Ger- 
many, which  were  subsidized  by  the  government,  intro- 
duced improvements  in  the  methods  of  light,  heating 
and  sanitation  in  their  workrooms,  as  well  as  rest  rooms, 
emergency  hospitals  and  lunch  rooms  for  their  em- 
ployes. Houses  at  a  low  rental,  recreation  places, 
lectures,  and  industrial  insurance  were  also  included. 
These  were  considered  entirely  from  the  view  point  of 
individual  betterment  and  were  therefore  called  Wohl- 
fahrts-Einrichtungen,  or  "welfare  institutions." 

By  experience  it  has  been  found,  in  America  as  well 
as  in  Europe,  that  the  promotion  of  the  physical,  men- 
tal, and  moral  welfare  of  the  employes  is  actually  a  mat- 
ter of  profit  to  the  employer.  If  healthy,  intelligent, 
comfortable  and  happy  workers  do  better  and  more 
work  than  those  who  are  ill-nourished,  unintelligent, 
miserable  and  ill  at  ease,  there  is  no  question  but  that  it 
pays  to  have  the  former.  If  the  workman  is  regarded 
and  treated  as  an  automaton,  bad  work,  ill-will,  dis- 
agreements, strikes  and  labor  troubles  result.  If  he  is 
regarded  and  treated  as  a  fellow  worker  by  the  em- 
ployer, he  is  far  more  apt  to  conduct  himself  as  such, 
and  by  interest  in  his  employer's  work  there  results  im- 


372  BUSINESS    MANAGEMENT 

provement  in  workmanship,  greater  celerity,  and  a  con- 
sequent increase  of  production. 

Undoubtedly  one  of  the  chief  causes  of  the  trouble 
and  turmoil  in  the  industrial  world  to-day  is  the  loss  of 
touch  between  employer  and  employe.  In  the  United 
States,  the  National  Civic  Federation  and  the  American 
Institute  for  Social  Service  of  New  York  City  are  mak- 
ing efforts  to  bring  about  harmony  and  sympathy  be- 
tween employer  and  employe  by  establishing  industrial 
betterment  branches  about  the  country,  and  by  publica- 
tions, lecture  tours  and  meetings. 

In  1889  was  begun  the  appointment  of  social  secre- 
taries by  large  concerns  who  proved  of  untold  advan- 
tage to  the  houses  who  employed  them.  They  are 
sometimes  called  "welfare  managers."  Often  they  are 
women  of  ability,  preferably  university  graduates. 
Their  duties  include  the  engagement  of  unskilled  labor, 
the  supervision  of  lunch  arrangements,  hours  and  terms 
of  employment,  the  visiting  of  employes  who  are  ab- 
sent for  illness  or  other  causes,  the  overseeing  of  clubs, 
societies  and  social  doings  and  things  of  a  similar  nature. 
When  these  welfare  institutions  are  properly  organized 
and  managed  they  do  not  require  a  great  deal  of  atten- 
tion. 

161.  Safety  devices  against  accidents  and  fire. — In  a 
consideration  of  welfare  institutions  or  industrial  better- 
ment, we  must  include  the  provision  of  safety  devices 
against  accidents  and  fire.  There  is  no  question  but 
that  if  the  employe's  peace  of  mind  is  assured  and  if 
there  is  no  perpetual  nuisance  or  danger  staring  him  in 
the  face,  he  can  devote  his  attention  and  energy  more 
strictly  to  his  work.  In  factories  it  is  very  necessary 
that  proper  screening  and  belting  around  the  machines 
be  provided.  It  is  becoming  more  and  more  common  to 


INDUSTRIAL  BETTERMENT,  373 

introduce  automatic  devices  for  protecting  the  workers 
even  if  they  be  careless  or  incautious.  Dangerous  parts 
of  machinery  are  shielded  and  painted  so  as  to  attract 
attention.  Frequent  boiler  inspection  is  averting  many 
accidents.  In  the  long  run  precautions  of  this  kind 
save  money  for  the  employer  by  avoiding  claims  for  ac- 
cidents. 

The  law  requires  that  factories  be  built  fireproof,  but 
at  present  not  all  of  them  are  fireproof.  Even  fire  es- 
capes are  not  of  much  use  in  case  of  a  panic,  anymore 
than  a  fireproof  building  is  if  the  inmates  have  all  lost 
their  heads  in  case  of  a  sudden  alarm.  The  only  way  to 
avert  a  panic  is  to  have  occasional  fire  drills.  There  are 
generally  more  casualties  as  a  result  of  panic  during  a 
fire  than  from  the  fire  itself,  and  often  there  is  a  panic 
from  an  alarm  when  no  fire  exists.  In  most  places  there 
are  fire  buckets  or  sprinkler  systems.  Still  if  no  one 
knows  how  to  use  them  in  emergency  they  are  not  of 
much  consequence.  Automatic  sprinklers  would  be  of 
no  use  if  there  were  not  plenty  of  water  at  hand.  For 
this  reason  they  should  frequently  be  looked  after.  A 
regular  fire  corps  should  be  appointed  from  among  the 
workers  and  drilled  occasionally.  Fire  escapes  too  are 
often  the  cause  of  casualties.  The  lowest  fire  escape 
balcony  generally  has  its  ladder  hung  up  so  as  to  pre- 
vent the  possibility  of  thieves  and  burglars  entering  the 
building.  If  the  ladder  is  long  and  heavy,  it  is  difficult 
to  handle  especially  under  the  stress  of  excitement. 
Consequently  there  is  a  jam  and  much  crowding  on  the 
stairs  of  the  escape.  By  fire-drills,  the  employes  may 
be  instructed  how  to  act — how  to  get  to  the  escapes  in 
an  orderly  way  as  quickly  as  possible,  and  then  how  to 
descend  properly  without  crowding.  Drills  have  been 
introduced  in  many  factories  with  remarkably  good  re- 


374  BUSINESS    MANAGEMENT 

suits.  After  several  of  these,  there  is  no  danger  of  a 
panic.  A  building  with  hundreds  of  workers  may  thus 
be  emptied  in  a  very  few  minutes  and  all  loss  of  life  and 
even  minor  accidents  averted.  Drills  pay  in  the  long 
run,  as  in  case  of  a  real  fire  the  firemen  may  devote 
their  energies  to  the  saving  of  property.  Then  too,  the 
peace  of  mind  of  the  workers  is  assured  as  they  know 
that  everything  will  run  smoothly  in  case  of  alarm. 

The  most  progressive  firms  now-a-days  provide  rest 
rooms  and  emergency  hospitals  in  their  buildings. 
Often  a  worker  may  be  indisposed  for  several  hours  but 
by  a  short  rest  and  a  little  care  he  may  be  able  to  go  on 
with  his  work  instead  of  going  home  and  missing  a  whole 
day.  Some  of  the  rest  rooms  are  provided  with  beds, 
couches,  and  bath  rooms  adjoining.  Some  firms  even 
supply  a  nurse.  Occasionally  there  is  a  doctor  in  daily 
attendance  whose  services  are  free.  The  nurses  also 
visit  invalid  employes  at  their  homes,  and  sometimes 
fruit  and  other  things  are  provided  by  the  company. 
Other  firms  keep  a  dentist  on  hand.  The  Diamond 
Match  Company  has  a  dentist  and  a  doctor  who  watch 
the  workers  for  symptoms  of  phosphorus  poisoning. 

162.  Light. — The  ideal  modern  factory  or  business 
house  is  situated  in  the  suburbs  of  the  great  cities  where 
fresh  air,  plenty  of  light  and  pleasant  surroundings  are 
to  be  procured  at  little  cost.  For  example,  the  Cad- 
bury  Works  are  situated  five  miles  from  Birmingham 
amid  beautiful  gardens.  The  Waltham  Watch  works 
near  Boston  overlook  the  river  and  a  well-treed  village. 
The  buildings  of  the  National  Cash  Register  Company 
at  Dayton,  Ohio,  are  surrounded  by  gardens.  The 
Natural  Food  Company  has  magnificent  buildings 
which  stand  in  a  park. 

The  smoke  nuisance  is  gradually  being  done  away 


INDUSTRIAL  BETTERMENT  375 

with.  An  understanding  of  a  few  chemical  facts  re- 
garding the  nature  of  smoke  disposes  of  the  obnoxious 
particles,  and  the  entrusting  of  its  control  to  a  chemist 
not  only  disposes  of  the  evil  but  saves  fuel  as  well. 

The  obvious  advantage  of  plenty  of  sunlight  in 
workrooms  leads  to  the  use  of  much  window  space. 
Sometimes  prismatic  glass  is  used  which  throws  the  light 
directly  into  the  center  of  the  rooms.  The  office  build- 
ing of  the  Armour  Company  has  800  windows.  The 
ceilings  are  fifteen  and  a  half  feet  high.  Each  floor 
has  140,000  square  feet  of  space.  The  windows  are  in 
sets  of  three  at  intervals  of  six  feet.  There  are  1,500 
electric  glower  lamps  nine  feet  apart  and  besides 
four  ninety-candle  power  lamps  at  intervals  on  each 
floor.  The  lamps  are  twelve  feet  above  the  desks. 
Electric  light  is  superior  to  gas  and  other  artificial  lights 
because  there  is  little  danger  from  fire  and  no  pollution 
of  the  air.  Also,  it  but  slightly  affects  the  temperature 
and  humidity  of  the  atmosphere.  Most  of  the  large 
progressive  firms  now  employ  this  method  of  lighting. 
Next  in  preference  come  the  Welsbach  burner  and 
acetylene  gas. 

163.  Ventilation. — Equal  in  importance  to  light  is 
proper  ventilation.  One  of  the  chief  dangers  of  indoor 
life  is  the  exposure  to  vitiated  air.  It  is  generally 
known  now-a-days  that  the  fresher  the  currents  of  out- 
side air  and  the  more  directly  they  enter  into  the  rooms 
the  more  beneficial  are  they  to  the  individual.  Bad  air 
causes  weariness,  dullness  and  torpor.  It  stands  to 
reason  that  an  employe  will  not  accomplish  as  much  in 
this  condition  as  when  he  is  kept  fresh  and  bright  by 
good  ventilation.  Proper  heating  and  cooling  in  the  re- 
spective seasons  are  well  worth  the  expense. 

In  the  most  important  modern  factories  exhaust  fans 


376  BUSINESS    MANAGEMENT 

are  employed  to  draw  off  odors,  steam,  dust  and  dan- 
gerous gases.  The  National  Cash  Register  Company's 
brass  foundry  is  so  arranged  that  the  fumes  from  the 
furnaces  can  be  collected  and  carried  away  at  the  roof. 
In  one  establishment  in  a  Massachusetts  foundry,  a 
large  flaring  hood  in  the  center  of  the  room  draws  off 
the  dust  by  upward  suction  draft,  and  the  operatives 
wear  helmets  of  fine  wire  inserts  to  protect  the  eyes  while 
cloths  under  the  helmets  protect  the  nose  and  mouth. 
In  the  Parke-Davis  Drug  Works  at  Detroit  the  hall 
doors  are  hermetically  sealed  to  prevent  the  dust  of  the 
hallways  from  entering  the  workrooms.  The  air  is  kept 
filtered  and  fresh  and  then  drawn  out  so  that  the  dust  is 
kept  from  the  workers  as  well  as  from  the  medicines  and 
drugs.  The  office  building  of  the  Armour  Company 
has  tile  ducts  in  the  walls  which  carry  fresh  air  through 
registers  in  the  walls  near  the  ceiling  and  the  foul  air 
is  led  away  near  the  floor.  Fresh  filtered  air  is  pumped 
in  by  a  fan  driven  by  a  powerful  motor  in  the  basement. 
It  is  known  that  particles  of  iron  and  stone  dust  induce 
diseases  of  the  respiratory  passages,  and  that  workers  in 
lead,  mercury,  arsenic,  phosphorus  and  dyes  suif er  from 
injurious  effects. 

164.  Sanitation. — In  connection  with  light  and  venti- 
lation comes  the  consideration  of  cleanliness  and  sani- 
tation. Realizing  that  next  in  importance  to  clean 
workrooms  is  the  cleanliness  of  the  individual,  employers 
have  provided  facilities  for  this.  Especially  when 
foods  and  fine  light  colored  materials  and  articles  are 
handled  it  is  imperative  that  the  workers  be  absolutely 
clean.  In  many  occupations  a  change  to  clothes  proper 
for  the  work  is  insisted  upon,  and  lockers  as  well  as 
washing  and  bathing  facilities  are  provided  by  all  en- 
terprising employers  free  of  charge.  The  same  thing 


INDUSTRIAL  BETTERMENT  377 

is  necessary  when  workers  are  employed  in  dirty  work. 

The  McCormick  Harvester  Works  provide  each  ma- 
chine shop  with  rows  of  marble  basins  for  hot  and  cold 
water  and  soap  and  towels.  The  Cleveland  Twist  Drill 
Company  provides  shower  baths.  In  the  works  of  the 
Pope  Bicycle  Manufacturing  Company  at  Hartford, 
Connecticut,  warm  water  flows  in  a  trough  past  the  in- 
dividual lockers.  Each  of  these  has  also  a  cold  water 
tap.  At  the  Cadbury  Works  in  England  swimming 
baths  are  provided.  The  Natural  Food  Company  has 
fourteen  rooms  with  baths  and  the  employes  are  allowed 
to  use  them  in  the  firm's  time;  hot  water,  soap,  and 
towels  being  provided  free  of  charge.  In  Germany  at 
the  Krupp  mines  near  Hanover  1100  miners  are  al- 
lowed to  use  the  twenty-eight  shower  baths  free  of 
charge  daily.  The  Spindlers  near  Berlin  have  free  bath 
houses  on  the  river  with  swimming  instructors  for  their 
1000  employes,  while  there  is  a  small  charge  for  hot, 
shower,  steam  or  hot  air  baths. 

165.  Rest  hours  and  lunch  rooms. — Realizing  the  im- 
portance of  proper  and  cheerful  methods  of  eating  as 
well  as  the  absolute  necessity  of  hygienic  food,  employ- 
ers have  established  lunch  rooms  where  healthful  lunches 
may  be  bought  at  a  low  figure.  More  has  been  done  in 
Europe  along  these  lines  than  in  the  United  States  yet 
great  progress  has  been  made  here  too.  Americans  are 
still  held  up  to  ridicule  for  their  patronage  of  "quick 
lunches,"  and  dyspepsia  continues  to  be  the  national  dis- 
ease. The  picture  of  the  shop  girl  or  factory  hand  rush- 
ing out  at  noon  to  lunch  upon  ice  cream  soda,  probably 
adulterated,  or  a  cup  of  strong  coffee  and  the  proverbial 
piece  of  pie,  is  still  laughed  at  by  Europeans.  Never- 
theless this  is  becoming  rarer  under  the  newer  facilities 
offered  by  employers. 


378  BUSINESS    MANAGEMENT 

In  France  there  is  a  law  which  insists  on  dining 
quarters  in  connection  with  factories.  In  many  of  the 
large  concerns  a  good  lunch  may  be  had  for  from  2  to 
15  cents.  The  Krupps  in  Germany  have  dining-halls 
which  are  provided  with  ranges  so  that  food  brought 
from  home  may  be  properly  heated.  Milk,  coffee,  and 
rolls  are  to  be  bought  at  cost  both  morning  and  evening. 
Another  big  firm  in  Germany  provides  the  same  kind 
of  a  dinner  that  is  given  to  the  German  soldier — six 
ounces  of  beef,  a  quart  of  soup  and  vegetables  for  5 
cents.  Plain  coffee  is  to  be  had  at  less  than  a  cent  a 
pint.  Another  dining-hall  is  provided  for  those  work- 
ers whose  families  bring  in  their  meals  and  who  are  al- 
lowed to  eat  with  them. 

In  the  United  States  the  Natural  Food  Company 
gives  free  lunches  to  350  girls.  One  hundred  and  fifty 
men  can  buy  dinner  for  10  cents  at  a  lunch  counter  be- 
longing to  the  company.  Wanamaker's  provide  good 
meals  at  10  cents  for  the  employes  at  their  stores.  The 
Chicago  Telephone  Company  gives  a  free  lunch  of  tea 
or  coffee  with  cold  meat  and  fruit  and  other  things  with 
a  frequent  change  of  menu.  The  United  States  Play- 
ing Card  Company  of  Cincinnati  can  seat  1230  in  its 
dining-hall.  The  menu  is  posted  outside  the  dining- 
hall  door  each  day  and  the  employes  can  make  a  selec- 
tion in  passing.  They  leave  work  in  four  batches. 
Each  takes  his  plate  from  a  rack  and  gets  it  filled  on  the 
way  to  his  seat.  At  some  of  the  mines  in  Colorado 
there  is  a  bar  where  men  may  procure  soft  drinks  and 
unadulterated  alcoholic  drinks  of  the  best  quality. 
This  is  to  protect  them  from  injurious  and  poisonous 
drinks,  for  it  is  a  well-known  fact  that  miners  are  much 
addicted  to  drinking.  Many  companies  too  provide 
plenty  of  pure  spring  or  filtered  water  so  that  at  least 


INDUSTRIAL  BETTERMENT  379 

while  their  employes  are  at  work  no  risk  from  bad  water 
is  incurred. 

166.  Recreation. — The  primary  consideration  in  the 
matter  of  recreation  is  of  course  the  adoption  of  an 
eight  hour  day,  which  many  progressive  firms  have  seen 
fit  to  do.  Next  is  sufficient  time  for  lunch  and  then 
perhaps  one  or  two  intervals  of  rest  for  a  short  period 
each  day.  We  all  realize  that  "all  work  and  no  play 
makes  Jack  a  dull  boy."  Just  as  much  and  even  more 
work  is  accomplished  in  shorter  hours.  Faculties  which 
are  dulled  by  fatigue,  weary  muscles,  and  a  mind 
fagged  out  are  not  conducive  to  good  nor  rapid  work. 

Many  firms  allow  a  few  minutes  of  rest  during  the 
afternoon,  realizing  that  their  employes  are  under 
stress  and  tension  which  is  greatly  relieved  by  a  short 
change,  and  that  they  really  work  faster  as  a  result. 
Cheerful  surroundings,  good  air,  and  light  all  have  a 
recreative  effect.  Music  is  encouraging  and  restful 
and  relieves  the  strain  on  the  nerves.  Some  companies 
make  it  a  practice  to  have  music  played  on  a  piano  some- 
times accompanied  by  a  song  during  work  hours.  No 
one  doubts  the  enlivening  effect  of  the  band  upon 
soldiers  on  the  march.  Why  not  have  music  in  the 
march  of  industry?  There  are  factories  in  which  the 
operatives  sing  to  the  piano  during  work. 

Many  concerns  provide  outside  amusements  which 
may  be  indulged  in  during  the  noon  recess.  The  girls 
of  the  Cadbury  Works  are  allowed  to  go  out  upon  the 
magnificent  twelve-acre  grounds,  where  there  are  tennis 
courts,  cricket  pitches  and  shady  walks.  The  wish  of 
the  woman  of  the  "Song  of  the  Shirt,"  who  longed  "but 
to  breathe  the  breath  of  the  cowslip  and  primrose  sweet," 
has  indeed  been  realized  in  these  days  by  her  more  for- 
tunate sisters,  who,  in  a  figurative  way,  ply  their  needles 


380  BUSINESS    MANAGEMENT 

and  thread  industriously,  but  who  can  relieve  the  monot- 
ony by  the  sight  of  the  sky  above  their  heads  and  the 
grass  beneath  their  feet.  In  wet  weather  the  Cadbury 
girls  go  to  the  gymnasium  where  there  are  two  instruct- 
resses who  are  employed  by  the  firm.  The  men  have 
several  acres  of  ground  with  a  pavilion  and  gymnasium, 
as  well  as  cricket  and  football  fields  and  a  fishing  pool. 
Mr.  Carnegie  at  Pittsburg  has  a  public  library,  a  con- 
cert hall  and  organ,  and  also  a  swimming  bath,  a  gym- 
nasium and  bowling  alleys.  A  low  fee  is  charged  for 
their  use. 

Vacations  with  full  or  part  pay  are;  profitable  to  both 
worker  and  employer.  In  Europe,  the  Saturday  half 
holiday  is  common  and  it  is  becoming  more  customary 
in  the  United  States.  Most  big  American  concerns  give 
summer  vacations  of  one  or  two  weeks  and  an  occasional 
outing  or  picnic  for  a  half  day.  The  Siegel-Cooper 
Company  of  New  York  gives  its  2000  women  employes 
a  chance  to  spend  two  weeks  at  their  seaside  home  every 
summer. 

167.  Effects  of  welfare  institutions  in  general. — A 
concern  which  treats  its  employes  rightly  gets  not  only 
the  interest  of  the  employe  but  of  the  buying  public  as 
well.  A  close  bond  of  union  between  the  management 
and  the  workers  is  essential  to  a  concern's  high  name  and 
reputation.  Under  harmonious  relations,  the  rate  and 
amount  of  production  advance,  allowing  the  employer 
to  realize  a  profit  while  the  workman  gets  a  sufficiently 
high  wage  to  live  in  comfort  and  peace.  In  one  past 
year  the  industrial  betterment  system  of  the  National 
Cash  Register  Company  netted  the  company  $30,000. 
It  stands  to  reason  that  a  modern  business,  progressive 
and  well  managed,  will  attract  a  better  class  of  workers 
than  one  which  is  not  progressive  and  takes  no  interest 


INDUSTRIAL    BETTERMENT  381 

in  the  welfare  of  its  employes.  The  lack  of  cooperation 
between  employer  and  employe  arouses  the  militant  side 
of  the  trade  unions,  which  results  often  in  threats  and 
violence.  With  cooperation  and  conciliation  commit- 
tees, any  disputes  may  easily  be  settled,  and  the  trade 
unions  need  no  longer  be  defensive  but  may  concentrate 
their  energies  on  the  development  and  elevation  of  the 
laboring  classes,  which  will  assuredly  bring  about  in- 
dustrial peace.  Man-power — the  personal  element  in 
business — is  certainly  the  most  influential  element.  The 
ideal  business  is  the  one  where  the  individual  is  not  only 
a  part  of  the  organization,  but  where  the  business  be- 
comes a  part  of  the  individual  worker  both  during  and 
after  work  hours. 

168.  Suggestion  system. — In  order  to  encourage  new 
ideas  on  the  part  of  the  employes  and  to  arouse  their 
interest  in  the  management  generally,  the  suggestion 
system  has  been  introduced  in  many  of  the  most  progres- 
sive business  houses  of  to-day.  It  has  been  found  to 
benefit  both  the  employer  and  employe.  Very  often 
practical  suggestions  for  improving  methods  are  re- 
warded by  prizes.  Small  locked  boxes  are  distributed 
throughout  the  buildings  and  offices.  They  have  a  slit 
through  which  the  written  suggestion  may  be  dropped. 
Each  box  is  provided  with  a  small  pad  of  paper  whose 
leaves  can  be  detached.  A  carbon  sheet  is  inserted  so 
that  there  may  be  a  duplicate  sheet  for  the  writer  for 
future  reference.  Each  suggestion  must  be  signed  by 
the  writer  in  order  to  be  considered.  They  are  collected 
at  regular  intervals  by  a  clerk  who  copies  them  without 
the  name,  and  files  the  originals.  The  copy  is  sent  to  a 
committee  representing  both  the  employer  and  em- 
ployes. These  consider  the  suggestions  and  decide  on 


382  BUSINESS    MANAGEMENT 

the  awards.    The  system  produces  some  wonderful  ideas, 
sometimes  of  great  value. 

The  suggestions  may  include  the  following  considera- 
tions: improvements  in  machinery;  improvements  re- 
garding the  comfort,  safety  and  general  welfare  of  the 
work  people ;  saving  of  time  and  expense ;  prevention  of 
the  waste  of  materials;  improvements  in  factory  and 
office  systems,  such  as  the  keeping  of  records,  duplica- 
tion of  circulars  and  advertising;  improvements  in 
methods  and  processes  of  manufacture  as  well  as  designs 
of  products  and  so  on.  The  salesmen  are  also  encour- 
aged to  make  suggestions  along  their  lines,  such  as  im- 
provements in  the  products  they  represent  and  methods 
of  advertising.  Sometimes  the  suggestions  are  not 
practical,  but  they  are  generally  suggestive  at  least, 
and  with  some  modification  will  prove  useful.  The 
prizes  range  all  the  way  from  fifty  cents  to  one  hundred 
dollars.  The  National  Cash  Register  Company  dis- 
tributed $6,070  in  one  recent  year  in  prizes.  In  this  year 
they  had  over  thirteen  thousand  suggestions,  of  which 
over  a  fourth  were  adopted.  Sometimes  the  suggestions 
involve  the  taking  out  of  patents.  Some  firms  offer 
awards  without  a  definite  prize  system.  The  rewards 
are  generally  distributed  by  progressive  firms  at  a  gen- 
eral gathering  of  all  the  employes  at  which  a  festival 
spirit  prevails. 

169.  Results  of  suggestion  system. — In  order  to  make 
the  system  work  properly  there  must  be  right  relations 
between  the  working  organization  and  management,  be- 
tween the  worker  and  the  employer.  It  seems  to  be  a 
well-established  idea  that  the  suggestion  system  when 
properly  managed  is  well  worth  while.  It  pays  from  a 
business  point  of  view.  Some  business  men  object  to 
the  system  because  they  think  that  the  plan  affords  an 


INDUSTRIAL    BETTERMENT  383 

opportunity  for  petty  complaints  and  interference  in 
things  which  are  not  the  affairs  of  their  employes.  It 
is  only  by  testing  it  and  examining  the  actual  sugges- 
tions received  that  a  firm  can  find  out  whether  or  not 
this  is  the  case.  Whether  or  not  the  individual  sugges- 
tions alone  pay  may  be  inferred  from  the  following 
notes  of  improvements  made  through  suggestions  of  the 
workers  at  the  National  Cash  Register  Company. 

One  man  suggested  that  a  certain  advertising  pam- 
phlet be  sewn  with  cord  instead  of  tying  it  with  ribbon. 
This  will  save  $36  per  month.  The  prize  was  $30. 
Another  suggested  the  use  of  riveting  machines  for 
studs  in  special  counter  frames.  The  counter  frames  in 
registers  are  made  in  ten  pieces.  These  were  formerly 
riveted  by  hand,  but  doing  the  work  on  a  riveting 
machine  saves  $171  per  year.  The  award  for  this  sug- 
gestion was  $20.  Another  person  suggested  that  a 
number  of  pieces  of  registers  made  with  very  expensive 
metal  could  be  fully  as  well  made  with  a  cheaper  kind  of 
metal  which  was  just  as  strong.  The  saving  amounts 
to  over  one  thousand  dollars  a  year.  The  prize  award 
was  $30.  A  woman  suggested  an  improvement  in  the 
engraving  machine  cutter  by  having  a  larger  screw  made 
for  the  spindle  which  holds  the  cutter  on  the  engraving 
machine,  making  it  more  convenient  for  those  who 
operate  the  machines.  The  award  was  $10. 

At  the  Cadbury  Works  near  Birmingham,  England, 
for  every  suggestion  that  is  accepted  and  adopted,  a 
prize  is  given  from  one  shilling  up  to  as  much  as  £150 
and  £200  for  exceptional  suggestions.  The  following 
notes  will  give  some  idea  of  the  character  of  the  minor 
suggestions:  A  wire  netting  under  the  stools  to  put 
aprons  and  waste  rags  on ;  footstools  in  the  shop ;  a  scrap 
box  with  wheels ;  the  removing  of  the  lights  overlooking 


384  BUSINESS    MANAGEMENT 

the  table  to  second  beam  in  front,  as  they  are  of  no 
benefit  when  the  work  is  stacked;  hooks  fixed  to  wall 
to  keep  the  window  cords  straight ;  repairing  of  the 
tin  over  ventilator;  the  placing  of  a  heat  radiator 
in  the  Dental  Surgery,  as  the  fire  grate  is  too  small; 
the  rolling  of  the  top  path  in  the  girl's  recreation  ground, 
as  it  is  rough  and  stony.  These  suggestions  were  carried 
out  by  the  firm. 

Major  Charles  Hine  of  the  Harriman  lines  has  given 
the  following  description  of  how  he  introduced  the  Unit 
System1  of  organization. 

After  starting  the  system,  about  the  second  day  I  got  out 
of  town  and  in  the  course  of  a  month  or  so  I  came  back  to  see 
how  they  were  getting  on,  to  check  them  up  and,  best  of  all, 
to  steal  some  of  the  ideas  that  had  been  developed  much  fur- 
ther than  had  occurred  to  me.  These  ideas  I  could  use  on 
other  divisions. 

The  suggestion  system  principle  has  a  broad  applica- 
tion. Many  companies  encourage  intelligent  criticism 
from  their  patrons.  The  Erie  Railroad,  for  instance, 
leaves  a  blank  page  on  all  its  local  time  tables  headed: 
"This  page  is  reserved  for  comments  either  favorable 
or  unfavorable  to  the  Erie  Railroad." 

The  B.  F.  Goodrich  Company  recently  sent  cards  to 
an  ordinary  automobile  mailing  list  asking  their  opinion 
of  tires  and  received  35,600  replies  which  it  has  worked 
up  into  a  sales  booklet.  The  Good  Housekeeping  maga- 
zine has  long  run  a  department  of  practical  household 
hints  called  "Discoveries"  paying  $1.00  for  each  dis- 
covery accepted.  This  is  considered  one  of  the  most 
interesting  departments  by  many  of  the  paper's  sub- 

1  Proceedings  Western  Railway  Club,  Jan.  18,  1910. 


INDUSTRIAL    BETTERMENT  385 

scribers  and  has  proved  so  successful  that  it  is  widely 
copied. 

Aside  from  the  mere  profit  to  the  employers,  the 
suggestion  system,  by  stimulating  the  flow  of  new  ideas 
and  commanding  the  best  efforts  of  every  worker,  is 
a  step  in  industrial  progress.  It  fosters  cooperation, 
and  cooperation  has  been  found  profitable  both  to  em- 
ployer and  to  employe. 

II— 25 


CHAPTER  X 

SOURCES    OF    ADMINISTRATIVE    INFORMATION 

170.  Use  of  statistics. — Only  when  statistics  can  be 
employed  progressively  are  they  effective.     It  is  not 
so  important  that  past  conclusions  be  confirmed  by  our 
statistics  as  it  is  that  deductions  for  the  future  be 
correctly  drawn.     Only  when  they  take  on  this  latter 
character  may  they  be  said  to  be  vitalized. 

Among  the  monthly  reports  of  the  Harriman  lines 
is  one  of  particular  interest  because  it  looks  forward 
instead  of  backward.  It  asks  not  for  an  explanation  of 
the  unsatisfactory  conditions  shown  by  the  figures,  but 
for  a  statement  of  what  action  has  been  taken  to  cor- 
rect them. 

R.  R Division. 

19.... 

General  Superintendent : 

Dear  Sir. — I  transmit  herewith  explanations  of  fluctua- 
tions in  operating  expenses  for 19.  .  .  .,  com- 
pared with  the  same  period  of  previous  years,  having  person- 
ally reviewed  the  month's  exhibit. 

The  fluctuations  are  regarded  by  me  as  unsatisfactory, 
and  I  have  taken  action  to  improve  results  in  future  periods. 

171.  Graphs   and   statistics. — The   graphic   method 
of  stating  statistics,  though  inferior  to  the  numerical 
in  accuracy,  has  the  advantage  of  enabling  the  eye  to 
take  in  at  once  a  series  of  facts.    This  advantage  is  not 

386 


SOURCES    OF    INFORMATION  387 

of  first  importance  when  we  are  considering  only  one 
set  of  facts.  Accuracy  is  then  more  essential  than  ease 
and  rapidity  of  representation.  But  ease  and  rapidity 
are  essential  when  we  want  to  compare  many  sets  of 
facts,  because  if  the  mind  is  delayed  long  in  taking  in 
the  general  effect  of  one  set,  it  loses  count  of  the  others. 
The  function  of  the  graphic  method  is  the  comparison 
of  different  sets  of  statistics.  President  Brown  of  the* 
New  York  Central  recently  told  the  New  England 
Railway  Club  how  a  simple  use  of  graphic  charts  saved 
the  road  $2,000,000. 

Thirty  years  ago  we  built  four  grain  elevators  in  Buffalo. 
In  1909  it  became  necessary  to  rebuild  them,  and  two  million 
dollars  were  appropriated.  However,  I  had  an  analysis  made  of 
the  grain  business,  and  plotted  a  chart  of  the  curve  of  pro- 
duction and  consumption.  Those  lines  cross  at  1913,  meaning 
the  probable  end  of  exporting  grain,  and  we  decided  to  spend 
only  $80,000  and  merely  repair  the  existing  elevators.  At  the 
meeting  to-day  even  that  appropriation  was  canceled  at  my 
recommendation. 


172.  Indicating  influence  of  one  set  of  facts  on  an- 
other.— Another  function  of  graphic  charts  is  the  indi- 
cation of  the  true  influence  of  one  set  of  facts  upon 
another.  For  instance,  it  is  known  that  cost  varies  with 
output.  In  starting  a  new  business  or  shaping  new 
plans  it  might  be  desirable  to  know  just  what  this  vari- 
ation was  likely  to  be  in  order  to  estimate  how  much 
business  would  be  necessary  to  overcome  the  initial  ex- 
penses, and  what  profit  should  be  realized  from  a  given 
volume  of  business.  A  chart  will  show  far  more  clearly 
than  statistical  tables  the  variations  of  two  factors  in 
relation  to  each  other. 


388  BUSINESS    MANAGEMENT 

173.  Comparisons   of   time   periods. — Still   a   third 
class  of  information    which    can    be    advantageously 
studied  with  the  aid  of  curves  is  that  which  is  compared 
from  month  to  month,  such  as  costs,  sales,  output,  etc. 
Almost  any  kind  of  information  can  be  plotted  with 
time,  as  the  horizontal  coordinate,  and  the  desired  in- 
formation as  the  vertical.    Curves  should  always  work 
out  from  the  left-hand  side  and  never  from  the  bottom 
up.     The  advantage  is  that  the  curve  can  be  kept  up 
to  date,  that  comparisons  with  previous  and  standard 
conditions  are  grasped  more  easily  and  present  the  re- 
sults over  a  long  period    of   time.     For  instance,  the 
average  market  price  of  a  product  for  every  business 
day  in  the  year  can  be  shown  in  much  less  space  than 
is  possible  in  any  other  way.    In  the  matter  of  output, 
sales,  costs,  etc.,  it  is  customary  to  carry  in  addition  to 
the  quantity  for  the  period,  the  cumulative  total  for 
the  year.     The  height  of  this  curve  always  shows  the 
total  business  to  date  and  its  slope  shows  whether  the 
tendency  is  to  increase,  remain  stationary  or  fall  off. 
Conditions  making  for  or  against   improvement    may 
then  be  caught  and  reached  sooner  than  they  would  be 
if  tabulations  of  figures  were  used.    Note,  for  instance, 
how  quickly  you  catch  in  figure  12  the  relation  between 
orders  and  shipment.    It  also  shows  a  cumulative  total 
and  illustrates  the  plotting  of  two  or  more  curves  to 
scale  on  the  same  chart. 

174.  Reports. — Reports  from  subordinate  officers  to 
the  management  are  the  most  common  means  of  col- 
lecting information.     The  trouble  with  them  in  most 
cases  is  that  they  are  too  long  delayed  to  be  of  real 
service.    Reports  can  be  kept  up  to  date.    All  that  is 
needed  is  a  time  schedule.    The  payroll,  to  give  a  fam- 


SOURCES    OF    INFORMATION 


389 


x^\ 


a- 


\ 


\ 


a- 


FIGURE  12. — GRAPHIC  REPRESENTATION  OF  RELATIONS  BETWEEN  ORDERS  AND  SHIP- 
MENTS IN  A  MANUFACTURING  CONCERN.1 

Reproduced  by  permission  from  Woods'  "Reports  on  Industrial  Organization,  Sys- 
tematization  and  Recounting." 


390  BUSINESS    MANAGEMENT 

iliar  illustration,  is  always  complete  on  Saturday  morn- 
ing, because  the  men  must  be  paid  at  noon,  but  the  cost 
department  using  the  same  data  and  doing  the  same 
work,  merely  making  the  debit  instead  of  the  credit 
entry,  is  allowed  to  fall  a  month  or  more  behind.  In 
fact,  the  only  difficulty  in  keeping  a  department  up  to 
the  minute  is  catching  up  at  the  beginning.  The  de- 
partment that  is  regularly  three  months  behind  is  hand- 
ling a  full  day  every  day;  otherwise  it  would  continue 
to  fall  behind  instead  of  remaining  regularly  at  three 
months.  After  it  has  once  caught  up,  the  same  effort 
will  enable  it  to  stay  caught  up.  In  fact,  work  that  is 
up  to  date  is  more  easily  handled  as  errors  or  discrep- 
ancies are  readily  detected  while  the  matter  is  still  in 
mind,  but  are  difficult  to  get  at  after  the  incident  has 
been  forgotten.  Improved  accounting  methods,  which 
utilize  perpetual  inventories  and  controlling  accounts, 
make  it  possible  to  keep  in  daily  touch  with  the  finan- 
cial condition  of  the  business,  instead  of  waiting  for  a 
monthly  or  yearly  stock  taking.  Robert  Owen,  at  the 
beginning  of  the  last  century,  was  accustomed  when 
away  to  receive  daily  reports  from  the  mills  at  New 
Lanark,  so  that  present-day  executives  who  are  not  in 
daily  touch  with  conditions  are  more  than  one  hundred 
years  behind  the  times. 

175.  Determining  facts  by  inspection. — Another 
method  of  determining  the  facts  of  a  business  is  by  in- 
spection. One  may  be  well  assured  that  in  these  days 
of  keen  competition  and  close  scrutiny  of  expense  of 
all  kinds  the  outlay  for  inspection  must  be  considered 
a  good  investment,  or  it  would  not  be  tolerated  by  so 
many  important  companies. 

The  inspection  methods  of  the  Westinghouse  Electric 


SOURCES    OF    INFORMATION  391 

and  Manufacturing  Company *  are  typical  of  large 
engineering  concerns.  The  inspection  department, 
which  is  under  the  supervision  of  the  manager  of  works, 
consists  of  several  hundred  men  divided  into  two  sec- 
tions ;  one  for  the  inspection  of  apparatus  building  in  its 
own  works,  the  other  for  the  inspection  of  all  materials 
coming  in  from  outside  manufacturers,  including  the 
various  raw  and  partly  finished  materials,  also  for 
apparatus  of  its  own  manufacture  returned  for  any  rea- 
son such  as  for  repair  or  exchange,  or  returned  from 
loans  or  exhibits,  etc.  Materials  coming  in  from  outside 
manufacturers  are  generally  inspected  upon  arrival  at 
the  works,  though  certain  kinds  of  special  nature,  such 
as  bar  pulleys,  etc.,  are  often  given  a  preliminary  inspec- 
tion or  test  at  the  place  of  manufacture. 

In  addition,  representatives  of  the  company  are  some- 
times delegated  to  inspect  the  works  of  manufacturers 
with  whom  there  seems  a  likelihood  of  doing  business  to 
see  if  their  facilities  are  such  as  to  enable  them  to  furnish 
materials  of  the  degree  of  excellence  required. 

The  material  specifications  prepared  by  the  "Material 
Committee"  are  made  use  of  by  the  inspection  depart- 
ment in  seeing  that  the  materials  supplied  are  actually 
as  ordered. 

A  very  complete  chemical  and  testing  laboratory  is 
maintained  by  the  company  and  full  advantage  is  taken 
of  it  not  only  in  the  preliminary  testing  of  raw  materials 
but  also  in  the  examination  of  partly  finished  material 
or  apparatus  at  various  stages  during,  the  process  of 
manufacture. 

Careful  records  are  kept  of  materials  rejected  or 

1  "The  Work  of  Shop  Inspection,"  C.  B.  Anel,  American  Machinist,  May  25, 
1911,  p.  977. 


392  BUSINESS    MANAGEMENT 

found  defective  in  any  respect  and  steps  are  taken  to 
see  that  such  materials  are  promptly  disposed  of,  to  pre- 
vent any  possibility  of  their  becoming  mixed  with  ac- 
cepted materials. 

176.  Inspection  of  work  in  process. — In  the  inspec- 
tions of  the  company's  apparatus  endeavor  is  constantly 
made  in  each  department  to  inspect  the  work  during 
the  actual  making  as  well  as  upon  completion. 

As  there  are  85,000  different  items  listed  in  the  stock 
room  it  would  be  impossible  to  inspect  every  individual 
piece.  With  automatic  and  semi-automatic  machinery, 
after  it  is  properly  set  and  working,  it  is  only  necessary 
to  inspect  a  small  percentage  of  the  output  to  prevent 
the  dies  wearing  out  or  getting  out  of  alignment.  On 
the  other  hand,  apparatus  which  is  made  by  hand  with 
special  limit  gauges,  templets,  etc.,  requires  detailed  in- 
spection of  all  its  parts  and  this  the  company  aims  to 
give. 

Next  to  inspecting  the  work  while  it  is  still  in  the 
workman's  hands,  the  best  method  is  to  have  the  ma- 
terial after  each  operation  delivered  with  an  identifica- 
tion tag  to  an  inspector  and  passed  on  before  going  to 
the  next  operator. 

Some  concerns  hold  each  man  responsible  for  defects 
in  the  piece  on  which  he  is  working,  thus  causing  him 
to  examine  all  the  work  he  receives  carefully  for  errors 
of  the  preceding  workers. 

177.  Questions  as  guides. — It  is  of  great  assistance 
to  the  inspectors,  especially  the  new  men  who  are  being 
trained,  to  be  supplied  with  some  list  of  questions  such 
as  the  following,  which  call  their  attention  to  the  special 
points  to  be  noted.     The  questions  are  so  drawn  that 
they  may  be  answered  by  yes  or  no,  thereby  minimizing 
the  writing  required. 


SOURCES    OF    INFORMATION  393 

COMPLETE  MACHINE  INSPECTION  TAG 

OF  THE 
WESTINGHOUSE  ELECTRIC  AND  MANUFACTURING  COMPANY 

Has  frame  been  cleaned  and  painted  inside? 

Are  field  coils  tight  and  is  bore  of  field  correct  ? 

Are  holes  evenly  spaced  ? 

Do  interpole  bolts  extend  beyond  shot  face  ? 

Are  connections  between  field  coils  properly  cleaned  and 

insulated  

Has  flame-proof  braid  been  removed  from  brush  holder 

ends  and  replaced  by  tape  ? 

Are  housings  entirely  free  from  dust  and  core  sand? 

Do  bearings  and  housings  fit,  and  is  alignment  correct? 

Are  oil  grooves  chipped  in  cells  ? 

Is  drain  hole  provided  for  waste  oil? 

Are  brush  holders  properly  spaced  and  brush  tension  cor- 
rect?  

Are  brushes  parallel  with  commutator  segments  ? 

Are  oil  covers  properly  fitted? 

Is  pinion  tight  on  shaft  and  key  properly  fitted? 

Does  gear  case  clear  gear? 

Did  commutator  develop  high-bar  on  test? 

Serial    

Order    

Inspected  by 

178.  Qualifications  of  inspectors. — Inspectors  should 
be  chosen  from  experienced  workmen  and,  if  possible, 
from  the  department  where  they  will  serve  as  inspectors. 
They  should  be  men  who  are  imbued  with  the  responsi- 
bility of  their  position  and  with  good  judgment  not 
only  in  passing  on  materials  but  in  dealing  with  men. 

Judgment  must  be  used  in  inspection  because  some 


394  BUSINESS    MANAGEMENT 

variations  from  drawings  in  no  way  affect  the  utility  of 
the  machine,  whereas  other  variations  do.  All  defects 
and  variations  are  given  careful  consideration  to  deter- 
mine whether  the  piece  should  be  scrapped  outright, 
whether  the  imperfection  may  still  be  rectified  or,  if  the 
feature  be  an  unimportant  one,  whether  the  machine  or 
apparatus  may  be  passed  as  it  stands.  Of  course,  a  full 
knowledge  of  the  situation  is  required  before  an  intelli- 
gent decision  can  be  arrived  at.  If  the  inspector  is 
undecided  he  refers  the  matter  at  once  to  the  depart- 
ment head,  stopping  all  work  thereon  pending  a  de- 
cision. 

179.  Information  from  the  outside. — The  efficiency 
of  inspection  depends  in  very  large  degree  upon  the  aid 
received  from  the  engineering,  correspondence,  testing 
and  other  departments.     Every  letter  of  complaint  is 
accepted  at  its  face  value  and  thoroughly  investigated: 
first,  with  a  view  to  ascertain  the  cause  of  the  trouble ; 
second,  with  a  view  to  prevent  a  recurrence  of  it.     It 
will  be  found  decidedly  efficacious  when  complaints  are 
received  involving  defective  workmanship  to  send  now 
and  then  the  foreman  or  inspector  of  the  department  at 
fault  to  see  for  himself  the  cause  of  the  trouble.    In  this 
way  their  viewpoint  will  be  broadened  and  they  will 
appreciate  more  fully  than  they  would  otherwise  the 
necessity  of  good  work. 

No  matter  how  adequate  the  precautions  may  be, 
there  will  be  certain  points,  particularly  with  new  appa- 
ratus, or  new  applications  of  standard  apparatus,  that 
can  only  be  gleaned  from  actual  experience.  Hence, 
the  works  must  depend  to  a  large  extent  upon  the 
suggestions  of  their  erecting  gangs  and  customers. 

180.  Various  kinds  of  inspection. — Inspection  as  a 
means  of  gaining  information  is  not  confined  to  mechan- 


SOURCES    OF    INFORMATION  395 

ical  lines.  Traveling  auditors  perform  similar  duties 
in  a  different  field.  Spasmodic  inspection,  however, 
unless  backed  by  proper  reports,  is  apt  to  give  errone- 
ous impressions.  Conditions  are  apt  to  be  unusual  and 
the  men  nervous.  In  fact,  companies  often  waste  con- 
siderable money  in  this  way.  When  it  is  rumored  that 
an  inspection  is  to  take  place,  men  are  knocked  off  from 
their  regular  work  and  set  to  cleaning  up  because  so 
many  executives  confuse  appearance  and  efficiency. 
This  may  be  overcome  in  part  by  having  the  inspection 
take  place  unannounced;  but  better  by  the  percentage 
system,  which  provides  that  a  certain  percentage  of 
the  work  will  be  examined  or  an  established  number  of 
inspections  made,  the  particular  lot  or  time  of  inspec- 
tion, of  course,  being  unknown.  If  the  work  inspected 
proves  satisfactory  the  entire  amount  is  passed.  If  any 
defects  are  found  the  entire  lot  is  carefully  examined 
for  further  errors. 

181.  Inspection  and  research. — Closely  allied  to  in- 
spection, so  closely  allied  in  fact  that  one  set  of  appa- 
ratus often  serves  the  two  functions,  is  research.  The 
two  functions  are,  however,  distinct;  inspection  is  for 
the  purpose  of  insuring  that  the  work  of  material  shall 
come  up  to  certain  prescribed  standards.  Research  is 
for  the  purpose  of  determining  these  standards  and  for 
discovering  possible  improvements  in  the  product  or 
the  manufacturing  processes.  Research  is  much  like 
advertising;  its  value  is  cumulative.  The  first  results 
are  apt  to  be  disappointing  and  absolutely  worthless 
if  the  work  is  discontinued.  When  the  general  plan  of 
recording  all  results  is  followed,  however,  apparently 
useless  results  often  prove  of  great  assistance  in  solving 
future  problems.  The  General  Electric  Company 
spends  annually  two  and  a  half  million  dollars  in  mak- 


396  BUSINESS    MANAGEMENT 

ing  and  developing  inventions.  In  addition  to  its  ex- 
perts it  employs  a  corps  of  twelve  patent  attorneys  and 
twenty-eight  assistants.  The  Westinghouse  Electric 
Company  maintains  a  department  almost  as  large  and 
expensive.  The  Pennsylvania  Railroad  Testing  Labora- 
tories at  its  Altoona  shops  were  established  in  1875,  and 
employ  over  200  men.  The  American  Telephone  and 
Telegraph  Company,  the  Hoe  Printing  Press  Com- 
pany, and  scores  of  smaller  companies  carry  a  force  of 
men  upon  salaries  whose  duties  are  to  invent  and  de- 
velop the  possibilities  of  inventions. 

182.  A  large  research  laboratory. — Probably  one  of 
the  largest  and  best  equipped  commercial  laboratories 
is  that  of  the  J.  I.  Case  Threshing  Machine  Company, 
which  makes  every  kind  of  machine  used  in  threshing 
grain.  It  has  its  own  facilities,  but  to  offset  the  heavy 
expense  of  maintaining  the  laboratory,  it  does  commer- 
cial work  for  other  firms. 

The  laboratory  occupies  four  rooms  in  the  company's 
office  building.  One  is  the  laboratory  office  in  which 
the  reports  are  made  up  and  the  results  of  the  various 
analyses  and  tests  recorded  for  use,  reference  and  dis- 
tribution. The  office  contains  a  library  of  several  hun- 
dred volumes  on  subjects  relating  to  chemistry,  physics, 
electricity,  heat,  power,  manufacturing,  etc.  The  fine 
instruments,  microscopes,  barometers,  hygrometers, 
anemometers,  machines  for  electrolysis,  grease-testing 
machines,  glue  testers,  etc.,  are  also  kept  here.  Among 
them  are  a  number  of  very  delicate  scales,  one  sensitive 
to  the  1,200th  part  of  a  milligram. 

Samples  of  all  kinds  of  minerals,  paints,  oils,  drugs, 
paper,  cloth,  leather,  rubber,  cordage,  fuels,  clays,  brick, 
etc.,  are  kept  here  for  reference,  inspection  and  com- 
parison. The  collection  of  samples  forms  a  valuable 


SOURCES    OF    INFORMATION  397 

education  not  only  for  the  chemists  but  for  the  shop 
foremen. 

The  system  of  record  keeping  is  careful  and  accurate, 
and  data  for  years  back  are  a  very  valuable  feature. 
One  set  of  books  is  used  for  research  work,  one  for 
recording  chemical  analyses,  one  for  physical  tests,  and 
one  exclusively  for  foundry  work. 

183.  Commercial  results. — The  head  of  the  labora- 
tory is  not  only  an  expert  chemist,  but  has  had  many 
years  of  practical  experience  in  the  iron  and  steel,  rub- 
ber, leather,  oil,  paint  and  other  industries.  Being 
thoroughly  practical,  he  is  able  to  judge  of  the  value  of 
any  particular  chemical  analysis  or  physical  test.  This, 
of  course,  is  essential  in  a  laboratory  of  this  kind,  for 
while  any  chemist  may  be  able  to  make  an  analysis,  yet 
in  applying  chemistry  to  practical  work  he  may  be 
entirely  at  a  loss,  and  through  lack  of  personal  experi- 
ence in  the  manufacturing  or  commercial  side  of  the 
problem  he  may  often  do  more  harm  than  good.  Each 
of  the  assistant  chemists  handles  a  special  line  of  work 
so  that  the  laboratory  runs  in  a  systematic  manner. 

A  very  important  feature  of  its  work  is  the  making 
of  specifications  for  the  raw  materials  which  the  com- 
pany uses.  This  involves  a  great  amount  of  testing  and 
research  work. 

Another  feature  is  tracing  the  causes  of  failures  and 
breakages  and,  if  necessary,  finding  a  remedy  for  the 
trouble.  This  is  also  an  important  feature  of  the  work 
of  the  Pennsylvania  Railroad  and  the  Westinghouse 
testing  laboratories  and  their  procedure  is  almost  iden- 
tical with  that  of  the  J.  I.  Case  Company.  Thus,  if  a 
threshing  machine  shaft,  bearing  or  belt,  proves  defec- 
tive or  breaks  for  an  unknown  cause  it  is  shipped  to  the 
laboratory  and  carefully  tested  and  examined.  If  the 


398  BUSINESS    MANAGEMENT 

fault  is  due  to  poor  workmanship  or  defective  materials 
the  chemist  reports  the  fact  and  it  is  replaced  free  of 
charge.  If  the  examination  fails  to  show  the  cause 
the  foreman  or  chemist  is  dispatched  to  the  locality 
where  the  trouble  occurred  to  make  a  thorough  investi- 
gation. If  an  inordinate  strain  has  been  applied  or 
unusual  conditions  introduced,  the  investigator  is  in  a 
position  to  suggest  or  make  the  necessary  changes. 
Although  this  method  is  expensive,  the  company  feels 
fully  repaid  in  that  it  insures  the  confidence  of  its  cus- 
tomers and  tends  to  improve  future  output. 

184.  Time  study. — One  phase  of  research  work 
which  has  awakened  a  great  deal  of  interest,  and  to 
which  reference  has  been  made  in  preceding  sections,  is 
"time  study,"  that  is,  the  scientific  determination  of  the 
amount  of  time  it  should  take  a  man  to  do  a  given 
piece  of  work.  Frederick  W.  Taylor,  who  has  been  so 
closely  associated  with  time  study  methods,  describes  it 
as  follows:1 

It  has  been  the  writer's  experience  that  the  difficulties  of 
scientific  time  study  are  under-estimated  at  first  and  greatly 
over-estimated  after  actually  trying  the  work  for  two  or  three 
months.  The  average  manager  who  decides  to  undertake  the 
study  of  "unit  times"  in  his  work  fails  at  first  to  realize  that 
he  is  starting  a  new  art  or  trade.  He  understands,  for  in- 
stance, the  difficulties  which  he  would  meet  in  establishing  a 
drafting  room,  and  would  look  for  but  small  results  at  first 
if  we  were  to  give  a  bright  man  the  task  of  making  drawings 
who  had  never  worked  in  a  drafting  room,  and  who  was  not 
even  familiar  with  drafting  implements  and  methods,  but  he 
entirely  under-estimates  the  difficulties  of  this  new  trade. 

The  art  of  studying  "unit  times"  is  quite  as  important  and 
as  difficult  as  that  of  the  draftsman.  It  should  be  undertaken 
1  Trans.  Am.  Society  Mechanical  Engineers,  vol.  24,  p.  1423. 


SOURCES    OF    INFORMATION  399 

seriously  and  looked  upon  as  a  profession.  It  has  its  own 
peculiar  implements  and  methods,  without  the  use  and  under- 
standing of  which  progress  will  necessarily  be  slow,  and  in  the 
absence  of  which  there  will  be  more  failures  than  successes 
scored  at  first. 

In  the  course  of  this  work  Mr.  Thompson  has  developed 
what  are  in  many  respects  the  best  implements  in  use,  and 
with  his  permission  some  of  them  will  be  described.  The  blank 
form  or  note  sheet  used  by  Mr.  Thompson,  shown  in  Fig.  13, 
contains  essentially: 

1.  Space  for  the  description  of  the  work  and  notes  in 
regard  to  it. 

2.  A  place  for  recording  the  total  time  of  complete 
operations — that  is,  the  gross  time  including  all  necessary 
delays  for  doing  a  whole  job  or  large  portion  of  it. 

3.  Lines  for  setting  down  the  "detail  operations"  or 
"units"   into  which  any  piece   of  work  may  be  divided, 
followed  by  columns  for  entering  the  averages   obtained 
from  the  observations. 

4.  Squares   for   recording   the  readings  of  the  stop- 
watch when  observing  the  times  of  these  elements.      (If 
the  squares  are  filled,  additional  records  can  be  entered 
on  the  back.) 

The  size  of  the  sheets,  which  should  be  of  best  quality 
ledger  paper,  is  8%  inches  wide  by  7  inches  long,  and  by  fold- 
ing in  the  center  they  can  be  conveniently  carried  in  the 
pocket  or  placed  in  a  case  containing  one  or  more  stop- 
watches. 

In  the  illustration  the  operation  consists  of  a  series  of  ele- 
ments. In  such  a  case,  the  letters  designating  each  elementary 
unit  are  entered  under  the  columns  "Op,"  the  stop-watch  is 
thrown  to  zero,  and  started  as  the  man  commences  to  work. 
As  each  new  division  of  the  operation  (that  is,  as  each  elemen- 
tary unit  or  "unit  time")  is  begun,  the  time  is  recorded.  Dur- 
ing any  special  dejay  the  watch  may  be  stopped,  and  started 
again  from  the  same  point,  although  as  a  rule  Mr.  Thompson 
advocates  allowing  the  watch  to  run  continuously,  and  enters 


400 


BUSINESS    MANAGEMENT 


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SOURCES    OF    INFORMATION  401 

the  time  of  such  stop,  designating  it  for  convenience  by  the 
letter  "Y." 

185.  Time  study  reduced  to  formula. — The  elemen- 
tary operations  are  usually  fewer  in  number  than  the 
complex  processes  of  which  they  form  a  part.     This 
greatly  simplifies  the  problem.     When  the  standard 
elemental  times  have  been  determined  and  tabulated, 
the  standard  time  for  any  new  work  can  be  determined 
without   making   a   special    study    by   combining   the 
proper  known  elemental  times.    In  fact,  formulas  can 
be  deduced  exactly  like  other  engineering  formulas  in 
which  the  varying  quantities  such  as  the  distance  trav- 
eled,  or  the  weight  moved,  may  be  substituted  and 
which  give  when  solved  the  standard  time  the  job  should 
take. 

Any  variation  between  this  standard  time  and  the 
actual  time  taken  in  doing  the  job  represents  avoidable 
loss.  To  eliminate  the  waste  it  is  often  necessary  to 
change  the  workman's  methods  of  doing  the  work  or  to 
re-design  the  machinery  so  as  to  facilitate  operation. 

Where  the  operations  run  into  the  thousands  the 
best  results  are  obtained  by  grouping  them  into  classes 
depending  upon  the  similarity  of  design,  shape  and 
mechanical  operation,  and  then  to  make  an  accurate 
study  of  each  group.  While  it  is  probably  true  that 
the  deductions  made  from  these  tests  will  not  be  as 
thorough  as  would  have  resulted  from  individual  tests, 
a  systematic  examination  of  such  classes  gives  quicker 
and  better  results  than  could  be  gained  by  a  haphazard 
examination  of  the  whole  field. 

186.  Written  aids,  books,  periodicals,  etc. — Books  on 
topics  connected  with  management  are  of  value  as  a 

basis  for  obtaining  an  education  in  fundamental  prin- 
n— 26 


402  BUSINESS    MANAGEMENT 

ciples  or  as  a  convenient  reference.  A  great  philosopher 
has  said  that  one  half  of  a  man's  education  consists  of 
knowing  where  to  get  information.  For  keeping 
abreast  of  the  progress  in  one's  own  field,  however,  it 
is  also  necessary  to  supplement  the  information  in  books 
by  periodical  literature. 

Among  the  most  valuable  sources  of  printed  informa- 
tion to-day  are  the  trade  papers  and  the  proceedings 
of  the  various  technical  societies.  These  sources  supple- 
ment each  other.  The  latter  are  somewhat  more  gen- 
eral in  that  the  proceedings  enumerate  the  theories,  the 
discoveries,  or  results  of  experiments  conducted  by  the 
members. 

In  the  same  class  with  the  proceedings  of  the  techni- 
cal societies  must  be  placed  the  various  publications 
offered  by  the  general  and  state  governments.  While 
the  various  departments  of  agriculture  are  doing  the 
best  work,  much  valuable  information  concerning  busi- 
ness is  contained  in  the  publications  issued  by  the 
bureaus  of  commerce  and  labor.  A  small  charge  is  made 
for  some  of  them,  but  the  majority  are  issued  free. 
Illinois  has  established  an  Engineering  Experiment 
Station  in  connection  with  its  schools  of  engineering  and 
has  investigated  such  important  topics  as  fuels,  building 
material,  railroad  equipment,  publishing  its  findings  for 
the  benefit  of  Illinois  manufacturers. 

The  Superintendent  of  Documents,  Washington,  D. 
C.,  publishes  two  monthly  catalogs,  listing  all  publica- 
tions of  the  Federal  Government. 

In  addition  to  making  use  of  the  library  facilities  of 
the  community,  many  companies  find  it  advisable  to 
maintain  specialized  libraries  of  their  own,  either  sepa- 
rately or  in  connection  with  their  testing  laboratories. 
These  libraries  collect  special  material,  such  as  literature 


SOURCES  OF    INFORMATION  403 

of  their  competitors,  forms,  formulas,  etc.,  which  cannot 
be  secured  through  the  regular  channels. 

187.  Study  of  competitive  methods. — Another  source 
of  information  is  one's  competitors.  When  the  Penn- 
sylvania Railroad  considered  the  question  of  pensions 
a  special  committee  on  Superannuation  and  the  Pension 
Fund  was  appointed  by  the  advisory  committee  of  the 
relief  department.  The  committee  examined  into  and 
reported  upon  the  various  systems  of  pensioning  in 
operation  on  more  than  seventy  of  the  leading  railroads 
of  Europe,  America,  Asia,  Africa  and  Australia.  When 
the  Weston  Electrical  Instrument  Company  resolved 
to  build  its  new  plant  at  Newark,  N.  J.,  it  sent  three 
practicing  engineers  on  a  year's  tour  of  American 
plants,  two  of  the  engineers  to  study  mechanical  fea- 
tures and  one  to  discover  what  arrangements  other 
companies  were  making  for  their  employes'  comfort. 

Mr.  C.  B.  Anel,  Assistant  Manager  of  Works,  West- 
inghouse  Electric  &  Manufacturing  Company,  in  a 
recent  speech  before  the  National  Machine  Tool 
Builders'  Association,  said: 

Recognizing  that  methods  of  manufacture  which  had  in  the 
past  been  satisfactory  for  their  needs  were  proving  inadequate 
to  handle  the  increasing  volume  of  business,  for  the  reasons 
already  stated,  the  Westinghouse  Electric  and  Manufacturing 
Company  spent  considerable  time  in  investigating  the  methods 
of  other  large  companies  in  similar  lines  of  business,  with  the 
result  that  it  was  believed  advisable  to  modify  the  original 
scheme  in  favor  of  the  so-called  "factory  system." 

In  a  recent  article  in  the  American  Machinist  ap- 
peared this  significant  paragraph: 

The  firm  stands  ready  to  furnish  information  concerning  its 
experience  in  this  line,  which  may  be  useful  for  others  who  are 
thinking  of  establishing  laboratories  for  themselves. 


404  BUSINESS    MANAGEMENT 

The  liberality  with  which  American  companies  are 
willing  to  share  their  experiences  has  often  excited  the 
surprise  of  European  visitors,  since  abroad  the  methods 
of  doing  business  are  zealously  guarded  from  all  out- 
siders. In  fact,  so  general  is  the  get-together  idea  in 
American  industry  that  a  firm's  willingness  to  give  in- 
formation is  a  fair  indication  of  the  value  of  the  infor- 
mation it  has  to  give.  Small  concerns  are  often  opposed 
to  giving  away  "trade  secrets,"  whereas  the  large  cor- 
porations are  glad  to  show  visitors  through  their  works 
and  to  furnish  any  information  within  reason.  On  the 
other  hand,  many  of  them  make  a  practice  of  sending 
their  foremen  and  department  heads  to  visit  other  fac- 
tories. 

One  method  which  has  proved  effective  in  writing  to 
a  competitor  for  information  is  to  state,  "this  is  the 
way  we  are  now  handling  the  matter;  if  you  have  a 
better  method  we  should  like  to  hear  of  it."  Another 
method  when  making  an  extended  investigation  is  to 
state  the  fact  and  offer  other  companies  copies  of  the 
results,  provided  they  will  co-operate  by  describing  their 
methods.  A  recent  inquiry  of  this  kind  addressed  to 
fifty  firms  concerning  their  method  of  applying  the 
"suggestion"  system  brought  thirty-five  replies. 

188.  Consulting  experts. — Specialists  exist  in  almost 
every  line  of  business.  There  are  consulting  engineers, 
certified  public  accountants,  testing  chemists  and  patent 
lawyers.  In  the  steel  business  there  are  agencies  which 
will  inspect  the  work  in  the  mills,  while  in  general  there 
are  advertising  and  sales  experts  and  information  bu- 
reaus without  number.  This  work  is  now  being  sys- 
tematized through  many  agencies,  so  that  the  business 
man  may  secure  information  more  readily  than  has  pre- 
viously been  possible. 


CHAPTER   XI 

SAVINGS    IN    TIME    AND    MATERIALS 

189.  Time-saving  by  "routing." — London  and  Paris 
first  learned  of  the  death  of  Pope  Leo  XIII  from  New 
York,  although  New  York  is  3,000  miles  further  from 
Rome.  This  was  because  the  Associated  Press  had 
routed  the  news. 

As  a  courtesy  to  the  Church,  so  that  Cardinal  Ram- 
polla  might  have  time  to  notify  the  Papal  delegates,  the 
Italian  Minister  of  Telegraphs  refused  to  allow  any 
news  of  the  Pope's  death  to  pass  until  two  hours  had 
elapsed.  When  the  Pope  died  an  attache  immediately 
telephoned  the  Associated  Press"  representative  two 
miles  away,  who  in  turned  cabled  to  the  New  York 
manager  personally,  as  had  been  previously  agreed, 
"The  number  of  the  missing  bond  is  404  Montefiore." 
To  avoid  any  suspicion  the  number  which  gave  the  time 
of  the  Pope's  death  was  to  be  written  backwards,  as 
352  for  253,  or  53  minutes  past  2.  It  happened  that 
this  made  no  difference.  When  the  telegram  arrived  in 
New  York  its  contents  were  shouted  to  the  sending 
room  and  each  operator  flashed  the  news  over  his  cir- 
cuit. Although  the  message  was  delayed  at  Havre  and 
again  at  the  French  Cable  Company's  office  in  New 
York,  the  New  York  papers  knew  of  the  Pope's  death 
nine  minutes  after  it  had  happened  and  the  San  Fran- 
cisco papers,  eleven  minutes.  The  foreign  newspaper 
agents  in  New  York  sent  the  news  to  their  respective 
cities  long  before  these  cities  had  heard  directly  from 
Rome. 

405 


406  BUSINESS    MANAGEMENT 

In  the  Associated  Press  methods,  we  find  an  admir- 
able illustration  of  efficiency  gained  through  careful 
planning  and  routing. 

The  routing  of  news  seems  easy  perhaps  because  of 
the  nature  of  the  substance  routed.  The  routing  of 
materials  over  a  line  of  railway  is  the  next  best  field 
from  which  to  draw  an  illustration.  Since  the  elements 
here  involved  pertain  to  industrial  routing  as  well  as  to 
transportation  it  is  well  to  study  them  carefully. 

190.  How  a  train  is  routed. — The  physical  routing 
of  a  railroad  train  is  done  by  the  locating  engineers  who 
lay  out  the  line.  They  make  a  preliminary  survey,  plot 
out  the  results,  estimate  the  cost  of  the  various  pro- 
posals and  after  much  preliminary  study  arrive  at  a 
solution.  There  are  four  factors  in  railroad  location: 

1.  The  needs  of  the  country  traversed,  connecting 
with  the  large  cities,  etc. 

2.  A  straight  line  is  the  shortest  distance  between 
two  points. 

3.  Gravity  is  a  force.     Working  contrary  to  it  by 
lifting  the  train  is  energy  wasted.     Grades  are  a  very 
important  part  in  railway  location,  because  they  deter- 
mine the  load  an  engine  can  haul. 

4.  Cost — 1  per  cent  grades  and  straight  track  are 
desirable,  but  if  a  hill  intervenes  it  may  be  more  econom- 
ical to  go  around. 

It  is  the  interplay  of  these  four  factors  that  deter- 
mines which  scheme  shall  eventually  be  selected.  A 
chart  often  helps  to  show  the  relations  of  these  factors 
to  each  other. 

When  the  track  has  been  laid  and  regular  trains  are 
to  be  run,  a  train  schedule  is  drawn  up,  a  dispatching 
system  is  installed  and  a  train  dispatcher  is  put  in 
charge. 


SAVINGS    IN    TIME    AND    MATERIALS        407 

The  dispatcher's  business  is  to  route  the  moving 
trains.  The  entire  force  must  have  absolute  confidence 
in  the  skill  of  the  train  dispatcher.  His  work  requires 
undivided  attention.  He  must  know  accurately  the 
road,  its  cuts,  curves,  gradients,  sidings,  and  the  capac- 
ity of  the  equipment  with  which  he  works.  The  train 
dispatcher  is  the  creature  of  emergencies;  he  is  the 
doctor  when  something  goes  wrong  with  the  road.  He 
is  in  constant  touch  with  all  moving  trains,  and  when 
anything  goes  wrong  it  is  he  who  tells  each  conductor 
and  engineer  what  to  do.  He  must  be  a  man  of  action, 
familiar  with  every  detail  and  able  to  take  advantage 
of  every  situation.  His  special  duty  is  to  designate  the 
meeting  and  passing  places  of  trains  and  to  keep  in 
motion  trains  which  would  otherwise  be  stalled.  At 
the  same  time  he  must  prevent  trains  from  overtaking 
each  other.  The  Railway  Age  Gazette's  statistics  of 
railroad  accidents  show  that  one-fifth  are  rear-end  col- 
lisions. 

This  fact  is  of  enormous  importance  to  the  dispatcher, 
for  every  mistake  may  involve  human  lives. 

If  human  life  depended  upon  the  decisions  of  the 
route  clerk  in  the  factory  as  closely  as  it  does  on  the 
train  dispatcher,  more  attention  would  be  called  to  this 
important  function  in  ordinary  business  life. 

191.  Essentials  in  routing. — Railroad  dispatching  has 
three  characteristics: 

1.  A  route  carefully  laid  out. 

2.  A  prearranged  time  schedule  or  time  table  of 
all  trains  based  on  the  experience  of  the  road. 

3.  A  train  dispatcher,  whose  duty  it  is  to  keep 
the  trains  moving  according  to  schedule  and,  if  this 
is  not  possible,  at  least  to  move  them  to  the  best 
possible  advantage. 


408  BUSINESS    MANAGEMENT 

The  proper  routing  of  work  through  shop  or  office 
is  characterized  by  the  same  three  features : 

1.  A  prearranged  route. 

2.  A  predetermined  time  schedule. 

3.  A  dispatcher. 

A  near  approach  to  the  railroad  schedule  in  the  com- 
mercial world  is  the  delivery-routing  system  of  a  big 
retail  store. 

192.  Securing  a  good  plant  layout. — The  physical 
routing  of  the  work  in  a  business  is  determined  mainly 
by  the  plant  layout  in  exactly  the  same  way  that  the 
railway  train  route  is  determined  by  the  track,  and  the 
same  care  should  be  given  to  laying  out  the  plant  that 
is  given  to  a  railroad  survey.  This  subject  has  already 
been  touched  upon  in  Chapter  VIII  of  "Organization," 
but  requires  some  further  consideration  here. 

Mechanical  helps  are  of  great  assistance  in  arriving  at 
the  best  solution  just  as  the  chart  is  of  great  assistance 
to  the  railroad  man  in  developing  his  time  table.  It 
is  well  to  cut  templets  to  scale  of  the  machines  including 
their  necessary  clearances  and  working  spaces  and  then 
shift  these  until  the  best  departmental  arrangement  is 
found.  A  symmetrical  arrangement  is  always  the  most 
economical  use  of  space.  Then  cut  templets  of  each 
department  and  fit  them  into  each  other  in  the  same 
way  as  to  arrive  at  the  complete  layout.  It  is  much 
easier  to  shift  paper  than  to  carry  the  idea  in  one's  head 
or  to  work  up  a  sketch  with  rubber  and  pencil.  Another 
method  is  to  prepare  several  distinct  layouts  on  tracing 
paper  and  then  by  superimposing  them  make  a  final 
sketch  including  the  best  features  of  each.  This  method 
is  followed  by  most  architects.  When  the  ultimate  solu- 
tion is  determined  by  the  site,  as  in  a  city  lot  or  in 
rented  quarters,  this  method  works  well;  but  where 


SAVINGS    IN    TIME    AND    MATERIALS        409 

perfect  freedom  is  possible  it  is  not  likely  to  give  so 
good  a  layout  as  the  first  method,  since  it  works  from 
the  wrong  end.  The  ultimate  solution  of  the  layout  of 
any  business  will  be  determined  by  the  interplay  of  the 
same  four  factors,  work  to  be  done,  straight  line  move- 
ment, gravity,  and  cost.  But  while  this  is  true  in  gen- 
eral, differences  in  application  of  the  principles  arise  as 
soon  as  they  are  applied  to  industrial  conditions. 

193.  Straight   line    between    terminals. — All  manu- 
facturing touches  the  outside  world  at  two  points — the 
receiving  and  shipping  departments.     These  are  the 
terminals  of  the  road,  and  the  simplest  and  best  layout, 
other  things  being  equal,  is  a  straight  line  between  these 
two  points.    Where  the  plant  has  only  one  connection 
as  one  street  or  one  railroad  siding,  the  general  char- 
acter of  the  routes  must  be  in  a  circle,  so  that  the  start 
and  finish  will  be  at  the  same  point,  or  a  U  or  series 
of  U's  both  ends  of  which  touch    the    outside   world. 
When,  however,  other  exits  are  possible,  receiving  and 
shipping  need  not  unduly  influence  the  routing,  but  be 
located  to  facilitate  manufacture.     As  soon,  however, 
as  these  elementary  conditions  of  location  of  the  "indus- 
trial terminals"  are  passed  there  appear  more  important 
complications  which  affect  the  routing. 

194.  Various  types  of  manufacture. — All  manufac- 
turing is  analytic,  continuous,  assembling,  or  more  often 
a  combination  of  all  three  processes.    Thus  the  United 
States  Steel  plant  at  Gary  is  analytic  in  that  it  breaks 
the  coal  up  into  coke,  gas  and  tar,  each  of  which  must 
be  henceforth  handled  separately.     Next  it  is  assem- 
bling, in  that  it  unites  the  coke,  ore  and  limestone  which 
must  be  received  separately  and  united  in  the  blast  fur- 
naces.   It  is  then  analytic,  in  that  it  separates  the  iron 
from  the  slag  which  is  subsequently  manufactured  into 


410  BUSINESS    MANAGEMENT 

cement,  and  finally  continuous  in  that  the  iron  continues 
without  further  additions  until  it  emerges  as  bars. 

195.  Analytic  manufacture. — This  type  is  one  in 
which  the  main  material  is  gradually  dissected  to  form 
many  products,  one  of  which  is,  however,  usually  of  pre- 
dominating importance.     The  best  illustration  is  the 
meat  industry  where  the  carcass  is  broken  up  into  beef, 
hides,  bones,  etc.,  each  of  which  is  treated  separately 
after  it  once  leaves  the  main  stream.     The  important 
point  in  such  industries  is  to  provide  means  of  taking 
away  the  parts  that  are  removed,  so  they  will  not  collect 
and  block  the  main  stream  of  work. 

196.  Continuous  manufacture. — This  is  the  type  in 
which  the  mass  remains  the  same  throughout  the  process, 
being  merely  acted  upon  and  changed  in  form.     This 
is  by  far  the  simplest  and  might  be  compared  to  a  canal 
where  the  entire  bulk  of  the  water  enters  at  one  end 
and  leaves  at  the  other.     In  weaving  the  thread  enters 
at   one   end   and,   with  the   sole   application  of  labor, 
emerges  as  cloth  at  the  other.     In  milling  the  wheat 
enters  at  one  end  and  the  flour  emerges  at  the  other. 

197.  Assembling  manufacture. — This  is  the  process 
in  which  many  different  materials  are  received,  worked 
upon  and  gradually  brought  together  to  make  the  fin- 
ished whole.    Building  is  the  best  illustration  because  it 
is  exclusively  an  assembling  operation.     It  assembles 
the  bricks,  cement,  plumbing  and  other  manufactured 
products  into  a  house.    The  important  thing  in  assem- 
bling is  to  see  that  the  necessary  parts  come  together 
at  the  right  time  and  place,  for  all  subsequent  movement 
must  wait  until  not  only  a  majority,  but  all  the  parts 
arrive. 

198.  Passageways  must  be  provided. — Whatever  the 
type  of  manufacture,  sufficient  room  must  be  allowed 


SAVINGS    IN    TIME    AND   MATERIALS        411 

to  provide  convenient  access  to  all  parts  of  a  machine, 
and  for  the  removal  of  any  machine  whenever  necessary. 
Sufficient  area  must  exist  for  the  storing  of  as  large  a 
supply  of  working  material  and  finished  material  as  may 
be  necessary  without  interfering  with  the  passageways. 
Storage  facilities  must  be  provided  at  each  point  where 
the  flow  of  work  is  likely  to  be  interrupted  and  where 
two  streams  unite.  In  order  to  minimize  this  area,  the 
most  economical  method  of  stocking  should  be  deter- 
mined and  the  space  allotted  on  this  basis. 

199.  Transportation. — Adequate  transportation  fa- 
cilities must  be  provided. 

The  open  areas  must  be  wide  enough  to  permit  the  passage 
of  two  trucks  in  the  aisles  and  for  the  sidetracking  of  trucks 
around  machines.  A  truck  system  involving  the  retention  of 
the  material  in  the  trucks,  with  as  little  unloading  as  possible, 
is  an  important  feature  and  one  deserving  attention  in  an 
establishment.  It  involves  the  building  of  a  considerable 
number  of  trucks,  and  departmental  supervision,  but  is  likely 
to  result  in  economy.  In  some  instances  trucks  are  desirable, 
built  so  as  to  pick  up  and  deliver  a  sheet-steel  keg  for  holding 
work  in  progress.  An  ample  supply  of  metal  "tote  boxes" 
for  holding  small  parts  will  facilitate  stock  moving  and  lessen 
losses  of  small  parts.1 

Derricks,  traveling  cranes,  or  industrial  railroads  are 
a  great  convenience  in  handling  heavy  materials  and  are 
often  a  necessity.  Belt,  link,  gravity  or  pipe  lines  are 
serviceable  where  the  material  is  uniform  or  will  flow. 
Where  the  plant  consists  of  several  buildings  it  is  cus- 
tomary to  connect  them  by  a  system  of  tunnels  radiat- 
ing from  the  power  house.  These  tunnels  have  cement 
floors,  brick  and  cement  walls  waterproofed  with 

1  Hugo  Diemer,  "Factory  Administration,"  p.  15. 


412  BUSINESS    MANAGEMENT 

asphalt.  They  are  large  enough  to  accommodate  the 
trucks  used  and  for  a  man  to  stand  upright.  They 
usually  carry  the  electric  and  water  pipes  but  no 
drainage. 

All  service  departments,  such  as  stock  rooms,  draft- 
ing rooms,  tool  rooms,  wash  and  locker  rooms,  should  be 
centrally  located  so  as  to  be  equally  accessible  from  all 
the  departments  which  they  serve. 

Certain  departments  are  by  their  nature  mutually 
exclusive. 

Obviously  it  would  be  inconsistent  to  have  a  saw  mill  in  the 
same  room  or  enclosure  with  departments  for  shellacking  and 
final  finishing  of  wood  surfaces,  as  good  work  of  this  character 
cannot  be  performed  where  the  surrounding  air  is  carrying 
even  a  small  amount  of  dirt  or  grit.1 

Some  work,  on  the  other  hand,  is  better  done  in  con- 
junction with  other  work  of  the  same  kind.  Stiff  hats 
are  dried  four  distinct  times  during  their  manufacture 
and  it  would  be  uneconomical  to  equip  four  separate 
drying  rooms  in  order  to  prevent  retracing  one's  steps. 

200.  Growth  must  be  allowed  for. — Even  railroads 
are  now  accustomed  to  look  into  the  future  and  build 
their  bridge  piers  and  terminals  to  accommodate  the 
expected  increase  of  traffic.  The  first  requirement  for 
systematic  expansion  is  land.  One  of  the  main  reasons 
big  businesses  are  moving  from  the  cities  to  the  suburbs 
is  to  provide  for  future  growth.  It  is  essential,  how- 
ever, that  a  growing  concern 

shall  not  burden  itself  at  the  beginning  to  provide  for  future 
prospects.     One  of  the  surest  plans  a  concern  can  follow  to 
prevent  it  from  ever  requiring  expansion  room  is  to  incur  too 
xDay,  "Industrial  Plants,"  p.  51. 


SAVINGS    IN    TIME    AND    MATERIALS        413 


heavy  an  expense  in  securing  a  location  that  will  permit  future 
growth.1 

201.  Expansion  not  to  interfere  with  flow  of  work  — 
The  buildings  should  be  designed  to  permit  expansion 
without  disturbing  the  flow  of  the  work.  The  simplest 
style  is  the  one-story  building  taking  its  light  from  the 
roof.  This  can  expand  indefinitely  in  all  four  direc- 
tions. In  all  multiple  story  building  side  lighting  must 
be  provided  for  and  so  growth  is  only  possible  by  ex- 
tending the  ends  or  building  separate  additional  build- 
ings, much  as  a  filing  cabinet  is  built  up  by  adding  units. 
This  is  possible  only  in  schools  or  textile  mills  where  the 
work  is  uniform  and  can  be  shifted  from  building  to 
building  without  loss.  Where  the  movement  is  a 
straight  line  from  the  receiving  room  to  the  shipping 
room  the  lateral  growth  will  add  capacity  without 
changing  the  method.  An  example  of  this  is  the  plan 
of  the  United  States  Steel  Corporation's  plant  at  Gary. 


c 

a 

^ 

o 

& 

I 

Ship  Canal 

To  be  filled  in  to  Provide  Land  for 
Lateral  Expansion 

Present  Shore  Line 

Receiving  and  Storage 

V 
\/ 

Blast  Furnace 

Soaking  Pits 

V 

Rail  and  Plate  Mills 

Shipping  by  Rail 

FIGURE  14. — GENERAL  LAY-OUT  OF  U.  S.  STEEL  PLANT  AT  GARY 
1  Duncan,  "Principles  of  Industrial  Management,"  p.  34. 


414 


BUSINESS    MANAGEMENT 


The  same  idea  in  multiple  story  buildings  is  shown 
in  the  Wagner  Electric  Manufacturing  Company  of  St. 
Louis  and  the  Allis- Chalmers  Company. 

Receiving  and 
store  room 

Machinery       Machin-   |  Future 

Assembling 
FIGURE  15. — LAY-OUT  OP  A  PLANT  WITH  MULTIPLE-STORY  BUILDINGS. 

The  idea  underlying  all  such  building  is  to  have  the 
work  which  may  need  the  most  room  in  the  future  touch 
the  growing  end. 

I T 

Dept.  3  Dept.  2 



Dept.  4  Dept.  1 

FIGURE  16. — CORRECT  LAY-OUT  OF  DEPARTMENTS. 

By  arranging  the  departments  as  in  Figure  17  growth 
in  departments  2  or  3  would  be  excluded. 


Dept.  1 


Dept.  2 


Dept.  3 


Dept.  4 


FIGURE  17. — INCORRECT  LAY-OUT  OF  DEPARTMENTS. 


SAVINGS    IN    TIME    AND    MATERIALS        415 

202.  Taking  advantage  of  gravity. — The  force  of 
gravity  being  universal,  it  influences  manufacturing  no 
less  than  railroading.     Every  time  a  load  is  brought 
down  stairs  and  taken  back  again,  energy  is  wasted. 
There  are  two  ways  to  avoid  this  waste.    The  materials 
may  be  taken  directly  to  the  top  floor  and  allowed  to 
work  back  systematically  to  the  first  through  the  manu- 
facturing processes,  or  they  may  be  started  on  the 
ground  floor  and  systematically  worked  up  to  the  top. 
The  finished  product  is  then  brought  down.     The  first 
way  is  usually  the  better  as  the  energy  stored  in  moving 
the  materials  to  the  top  may  be  economically  used  to 
transport  them  through  the  manufacturing  processes 
back  to  the  shipping  room  on  the  ground  floor. 

Gravity  should  be  recognized  in  small  individual  op- 
erations as  well  as  in  a  great  mass.  In  the  best  organ- 
ized shops  machine  tenders  are  no  longer  allowed  to  drop 
their  product  on  the  floor.  They  take  it  from  a  movable 
table  at  machine  height  and  pass  it  through  the  ma- 
chine to  another  movable  table  so  that  when  the  work  is 
finished  the  materials  can  be  rolled  to  the  next  operator, 
thereby  saving  the  lifting  and  the  carrying.  The  trucks 
should  have  large  wheels  and  large  beamings. 

Lifting  goods  to  a  car  or  truck  is  unnecessary  as  the 
shipping  room  should  be  level  with  the  floor  of  the  car 
or  truck. 

203.  Time  element  in  routing. — Routing,  however, 
involves  not  only  materials  and  locations  but  time  as 
well.    Much  routing  in  a  high  stage  of  development  has 
gone  unrecognized  as  such  because  business  time  sched- 
ules are  not  often  recognized  as  such,  being  expressed  as 
quantity  of  output.    The  time  schedule  of  the  Carnegie 
Steel  Company,  for  instance,  was  a  constantly  increas- 
ing number  of  tons  of  steel  per  week  and  every  superin- 


416  BUSINESS    MANAGEMENT 

tendent  who  fell  below  this  mark  was  expected  to  ex- 
plain. When  analyzed,  5,000  tons  per  week  simply 
means  that  5,000  tons  must  be  completed  in  7  x  24  or 
168  hours,  in  other  words,  that  each  ton  must  not  take 
more  than  168-5000,  or  .0336,  hours  to  produce. 

204.  Two  types  of  routing. — From  the  time  schedule 
standpoint  there  are  only  two  classes  of  manufacture : 

1.  For  stock;  that  is,  the  factory  turns  out  the  same 
thing  continuously,  throwing  the  responsibility  of  find- 
ing a  market  for  the  product  on  the  sales  department. 
This  class  includes  textiles,  typewriters,  shoes,  furni- 
ture, clothing,  pianos  and  most  ordinary  goods  which 
are  consumed  in  quantity.    Quantity  time  schedules  are 
adequate  for  manufacture  for  stock. 

2.  For  specific  contract;  that  is,  a  single  object  made 
to  a  customer's  order.    This  class  includes  repair  work 
on  orders  from  the  general  shops,  but  its  most  impor- 
tant application  is  the  assemblage  of  large  engineering 
works  such  as  locomotives,  large  machinery,  steamboats 
and  buildings.     Making  connections  is  the  important 
thing  in  manufacturing,  as  it  is  in  railroading,  for  one 
late  part  will  stall  the  entire  work.    A  premature  arri- 
val is  as  bad  as  a  delay.    If  the  steel  for  a  modern  sky- 
scraper arrives  before  the  foundations  are  complete, 
chaos  ensues,  for  it  is  constantly  in  the  way,  retarding 
the  work  which  must  be  done  before  the  steel  can  be  set. 
It  may  take  a  month  or  more  to  straighten  out  the  con- 
fusion.   It  is  therefore  necessary  to  figure  out  the  time 
necessary  to  manufacture  each  separate  part,  and  to 
schedule  the  starting  date  of  each  succeeding  operation 
accordingly.     These  time  schedules  resemble  ordinary 
railroad  time  tables. 

For  example,  in  the  Thompson- Starrett  schedule  for 
construction  of  a  New  York  office  building,  shown  in 


SAVINGS    IN    TIME    AND    MATERIALS        417 

Figure  18,  it  will  be  noticed  that  the  foundations  start 
11-1  (November  1),  the  day  the  excavation  is  finished 
and  not  sooner,  and  that  the  steel  erection  starts  11-24 
(November  24),  the  day  the  foundations  are  finished. 
The  granite,  however,  depends  not  only  upon  the  steel, 
but  upon  the  foundation  walls,  and  so  the  granite  starts 
as  soon  as  they  are  brought  to  grade,  12-8  (December 
8).  The  limestone  follows  the  granite  12-10  (Decem- 
ber 10)  and  the  brick  succeeds  the  limestone  12-15 
(December  15).  The  floor  arches,  however,  depend 
again  on  the  steel  and  follow  right  behind  the  rivets  be- 
fore the  steel  work  is  complete,  and  so  throughout  the 
building.  The  difference  of  a  day  or  two  between  op- 
erations is  to  allow  the  time  necessary  to  get  the  ma- 
terial on  the  job  and  so  be  able  to  start  at  once. 

205.  When  special  dispatching  is  necessary. — As  in 
railroading,  the  time  schedule  is  the  important  thing 
and  the  more  spectacular  method  of  special  dispatch- 
ing is  resorted  to  only  when  unforeseen  circumstances 
occur.    Therefore,  personal  dispatching  is  of  compara- 
tively little  importance  in  manufacturing  for  stock,  es- 
pecially where  automatic  machinery  is  used  which  sets 
the  pace  for  the  operator.    It  is,  on  the  other  hand,  an 
important  adjunct  to  manufacturing  for  specific  or- 
ders, because,  on  account  of  its  irregular  nature,  the 
general  and  repair  work  cannot  be  mapped  out  in  ad- 
vance and  because  the  elaborate  schedule  of  a  building 
or  other  work  may  be  entirely  invalidated  by  the  care- 
lessness of  one  individual.     Like  the  train  dispatcher 
the  industrial  dispatcher  must  know  his  shop,  its  exact 
condition,  its  capacity,  special  characteristics  of  men 
and  machines  and  the  amount  of  work  and  materials  he 
has  on  hand. 

206.  How  to  plan  the  routing. — But  the  dispatcher, 

IE— 27 


418 


BUSINESS    MANAGEMENT 


Tom  tut  TIME   SCHEDULE 

THOMPSON-STARR ETT  COMPANY 

CLASS  Office-Loft          BUILDING  133  WILLIAM  STREET         NO.  £45      DATE  Decal.1909^ 


OFFICE  SCHEDULE 

WORK 

I     STEEL  DRAWINGS 
2    ARCHITECT'S  DRAWINGS 
WRECKING 
EXCAVATION 
DRAINS  AND  WATER 
CAISSONS—  FILES 
FOUNDATIONS-CONCRETE 
WALLS  TO  GRADE 
9    WATERPROOF 
0    GRILLAGE—  COLUMN  BASES 
1     STEEL  ERECTION-STACK 
2     ORNAMENTAL  IRON—  STA  IKS—  PLAIN 
3                  "                     "         FINISH 
4     ELEVATORS—  GUIDES—  TEMP.  CAR 

ti     BOILERS 

17       PUMP—  TANKS 

18    ARCHES 

19       PLUMBING—  GAS—  ROUGH—  TEST 
20                   "                   FINISH—  FIXTURES 
21       HEAT—  VENTILATION—  ROUGH 
22             "             REGULATION—  FINISH 
23      ELECTRIC—  ROUGH—  TEMP.—  LIGHT 

24              "            FIXTURES—  MOTORS 
25    COMMON  BRICK  WALLS 
26    GRANITE 
27     BLUESTONES 
28    LIMESTONE—  MARBLF. 
29    TERRA  COTTA 
30    FACE  BRICK—  ENAMELED 

31       SPECIAL    BRICK-MOULD-FIRE-HOLLOW 

32    WOOD  FRAMES—  SASH 
33     METAL  FRAMES    SASH 

JOB  SCHEDULE 

9-10 
10-10 

10-10 

10-10 
11-1 
10-30 
10-30 

10-30 

10-30 
11-10 
10-35 
9-35 
10-1 
10-1 
9-35 
10-5 
10-5 
10-35 
10-35 

9-30 
10-15 

10-20 

10-15 
11-15 
10-28 
10-25 

10-25 

10-25 
11-25 
11-2 
10-5 
10-15 
10-15 
10-1 
10-25 
10-25 
11-5 
11-2 

START 

MO                DAY 

10-10 
10-10 

11-1 

11-25 
11-25 
11-10 
11-24 
13-5 
2-R 
13-30 
2-20 
1P.-5 
1-8 
l?.-fl 
12-3 
2-10 
12-3 
2-10 
12-3 
2-10 
12-16 
12-6 
12-6 
12-10 
13-30 
13-15 
13-15 
13-16 
13-16 

FINISH 

MO                DAY 

11-1 

10-20 

11-35 
13-8 
2-10 
11^20 
1-1 
1-10 
n-10 
1-25 
3-20 
1  -5 
1-20 
1  -1O 
1-20 
3-15 
1-20 
3-15 
1-20 
3-15 
1-20 
12-10 
12-10 
12-16 
1-20 
1-12 
1-12 
1-20 
1-20 

10-35 
11-15 
11-10 
11-10 
11-10 
11-15 
11-33 
13-5 
11-20 

11-5 

11^5 
11-15 

11-25 
12-1 

1-10 

11-2 
11-25 
11-20 
11-30 
11-30 
11-35 
11-38 
13-15 
13-1 

11-15 

11-15 
11-35 

13-5 
13-15 

1-15 

34      PULLEYS—  WEIGHTS—  CHAINS 

35    GLASS 
3fi     ROOF  COVKR 
37     SHEET  METAL 
38    BUCKS 
39    STRIPS  AND  FILL 
40    PARTITIONS  AND  FURRING 
41     GROUNDS  AND  LATH 
42    PLASTER—  PLAIN 

43                "                 ORNAMF.NTAL 

44    MARBLE  WALLS-nLE 
45            "          FLOORS  —  TILE.  MOSAIC.  TERRAZZO 
46    HARDWARE—  FINISH 
47    TRIM—  WOOD 

48            "            KALEMEIN 
49     PAINT—  DECORATION 
50    FINISH  FLOOR—  WOOD—  CEMENT 
51     MAIL  CHUTE 
52'  REVOLVING  DOOR 

53      PAVING—  SIDEWALK—  CORB 

54    VAULT  WORK 
55    FILTER 

56     SPRINKLER—  PNEUMATIC—  SWEEPING 

57    ICE  PLANT 
58    LAUNDRY—  KITCHEN 

59      ENGINES-GENERATORS 

60 
61 
62 
63 
64    FINISH  BUILDING—  SCHEDULE  TIME 
65          "                "             CONTRACT  TIME 
Ftcuu  U 

13-16 
1-7 
1-8 
1-8 
13-36 
13-38 
1-4 
1-10 
1-19 
3-1 
2-1 
2-10 
1-28 
2-10 
2-10 
2-20 
2-20 
13-20 

2-16 

1-20 
1-20 
1-25, 
1-25 
1-25 
2-1 
2-5 
2-12 
3-1 
3^-1 
3-1 
3-10 
.2-18 
3-20 
3-20 
3-20 
3-20 
2-2a 

3-8 

3-20 
4-1 

FIGURE  18. 


SAVINGS    IN    TIME    AND    MATERIALS        419 

or  the  order-of-work  clerk,  is  not  supposed  to  work  out 
his  schedules  alone.  The  planning  department  pro- 
vides him  with  all  the  necessary  information  as  to  what 
work  is  to  be  routed  and  how  it  is  to  be  routed.  The 
order-of-work  clerk  dispatches  his  jobs  in  accordance 
with  these  instructions.  He  must  keep  in  mind  a  multi- 
tude of  details  regarding  the  machines,  the  men  and  all 
the  jobs  which  have  been  routed  for  him,  for  it  is  his 
duty  to  keep  the  work  moving.  Accordingly,  he  is  sup- 
plied with  a  dispatch  or  "route"  board,  the  instru- 
mental means  by  which  the  planning  room  controls  the 
operating  departments. 

207.  What  the  route-board  is. — This  board  which 
contains  many  groups  of  hooks,  each  group  being  com- 
posed of  three  sets,  placed  one  above  the  other,  shows 
the  progress  of  all  work  and  the  movement  of  all  ma- 
terial from  point  to  point.  When  a  job  is  assigned  to  a 
machine,  the  operation  card  is  hung  on  the  lowest  one 
of  a  series  of  three  hooks,  each  machine  or  working  area 
in  the  shop  being  represented  on  the  bulletin  board  by 
one  of  these  sets  of  three  hooks.  Thus  when  a  job  is 
assigned  to  a  machine  it  shows  that  all  drawings,  in- 
struction cards,  etc.,  are  ready;  that  the  materials  are 
on  hand  and  everything  ready  for  the  machine  to  begin 
its  work.  It  is  then  that  the  "operation  order"  which 
covers  a  given  operation  goes  on  hook  No.  3,  the  lowest 
hook  and  the  one  which  represents  all  "jobs  ahead  in 
the  shop"  for  that  machine. 

Next,  when  the  materials  have  been  moved  to  the 
machine,  the  operation  order  is  put  on  hook  No.  2, 
"jobs  ahead  at  machine." 

Finally,  when  the  job  is  actually  begun  the  operation 
order  is  moved  to  the  top  hook,  No.  1,  "job  on  ma- 
chine." 


420  BUSINESS    MANAGEMENT 

The  order-of-work  clerk,  or  for  that  matter  any 
person  interested,  can  follow  the  movement  of  a  job 
through  the  shop  by  watching  the  operation  orders  on 
these  three  hooks.  If  the  job  should  be  moved  to  an- 
other machine  then  the  operation  order  would  be  as- 
signed to  another  group  of  three  hooks  corresponding 
to  the  second  machine. 

208.  Planning  board  signals  all  movements. — Thus 
the  "planning  board"  signals  the  movements  and  indi- 
cates the  sequence  in  which  the  jobs  are  done.    This  it 
does  for  the  planning  room;  but  the  man  in  the  shop 
must  also  be  informed  of  these  movements,  for  his  ac- 
tivities depend  on  them.    He  must  know  whether  he  is 
to  work  at  the  same  or  a  different  machine  after  one  job 
is  completed.     He  cannot  run  to  the  planning  room 
every  time.    Hence  a  miniature  "bulletin  board"  is  put 
in  the  shop;  and  when  an  order  in  the  planning  room 
goes  to  hook  No.  2,  "jobs  ahead  at  machine,"  a  dupli- 
cate order  goes  upon  the  shop  bulletin  board  notifying 
the  worker,  as  he  consults  it,  what  jobs  have  been 
planned  ahead  for  him. 

209.  Questions  answered  by  route-board. — By  means 
of  this  route-board,  as  it  is  sometimes  called,  a  whole 
series  of  questions  vital  to  the  management  can  be  an- 
swered immediately:     (1)  what  job  shall  be  done  first; 
(2)  if  a  machine  breaks  down  what  other  machine  can 
do  the  work;  (3)  if  a  man  is  absent  what  other  man  can 
do  the  job;  (4)  what  is  the  cost  of  any  operation  on  any 
machine  for  any  hour,  or  what  is  the  total  cost  of  all 
operations  going  on  on  all  machines  in  any  hour. 

210.  Status  of  work  in  progress. — In  all  quantity 
manufacture — as  for  stock  where  the  contract  work  is 
divisible  into  working  units,  as,  for  example,  a  railroad 
embankment  into  cubic  yards — a  regular  proportion 


SAVINGS    IN    TIME    AND    MATERIALS 


must  be  completed  in  each  unit  of  time  to  finish  the 
entire  contract  punctually.  If  the  shop  is  unable  to 
produce  its  quota  at  the  start,  it  will  surely  be  unable 


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to  make  up  the  shortage  in  addition  to  the  regular  allot- 
ment at  the  end.  It  is,  however,  in  the  assembling  in- 
dustries that  the  progress  of  work  must  be  most  care- 

1  Reprinted  by  permission  from  H.  L.  Gautt's  "  A  Graphical  Daily  Balance 
in  Manufacture,"  in  Transactions  American  Society  of  Mechanical  Engineers, 
Vol.  XXIV,  p.  1324. 


BUSINESS    MANAGEMENT 


fully  watched.  On  the  first  indication  that  any  one  part 
is  falling  behind,  thus  making  likely  the  delay  of  the 
entire  work,  it  should  be  brought  up  to  date  either  by 


employing  men  overtime  or  by  increasing  the  force. 
Comparative  figures  are  always  more  intelligible  and 
therefore  it  is  better,  if  possible,  to  combine  the  progress 

1  Reprinted  by  permission  from  H.  L.  Gautt's  "A  Graphical  Daily  Balance 
in  Manufacture,"  in  Transactions,  American  Society  of  Mechanical  Engineers, 
Vol.  XXIV,  p.  1324. 


SAVINGS    IN    TIME    AND    MATERIALS 

report  and  the  time  schedule  which  shows,  at  all  times, 
the  state  of  the  job  in  relation  to  the  schedule. 

The  American  Locomotive  Company's  progress  re- 
port is  shown  in  Figure  19.  The  upper  and  lower 
heavy,  black  lines  indicate  the  time  schedule  and  cor- 
respond with  the  start  and  finish  dates  on  the  Thomp- 
son-Starrett  schedule.  They  are  printed  in  red  on  the 
original  form  and  are  known  as  the  danger  lines.  A 
black  line  is  ruled  under  each  department  when  all  the 
work  is  finished  to  indicate  this  fact  to  the  chaser. 
Figure  20  shows  the  same  form  as  used  in  the  machine 
shops.  The  starting  and  stopping  lines  have  been  left 
off  to  avoid  confusion.  It  will  be  noticed  that  the  dif- 
ferent operations  follow  one  after  the  other  in  regular 
sequence.  Any  department  holding  up  the  work  shows 
that  fact  immediately,  for  its  figures  do  not  follow  those 
of  the  preceding  department. 

The  information  to  keep  such  a  report  up  to  date 
may  be  obtained  from  the  shop  by  the  coupon  form  of 
order  (Figure  21).  This  order  which  follows  and  is 
usually  wired  fast  to  the  piece  resembles  a  railroad 
ticket  with  a  coupon  for  each  department.  When  the 
work  in  any  one  department  is  completed  the  coupon 
is  detached  and  returned  to  the  dispatcher  who  enters 
the  fact  on  his  report.  In  this  way  it  is  possible  to 
know  by  noon  of  any  day  the  exact  state  of  all  work  in 
progress  up  to  quitting  time  of  the  day  before  and  so 
it  is  possible  to  push  work  which  is  falling  behind. 
But  in  shops  where  the  planning  department  is  fully 
developed  the  state  of  work  is  indicated  on  a  "progress- 
of-work  sheet"  by  the  record  clerk  when  the  job  is 
given  out  and  when  the  ticket  is  returned  by  the  worker. 
In  outside  work  and  work  done  by  contractors  it  is  cus- 
tomary to  get  the  information  by  personal  inspection. 


424 


BUSINESS    MANAGEMENT 


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FIGURE  21. — COUPON  FORM  OF  ORDER  TICKET. 


SAVINGS    IN    TIME    AND    MATERIALS        425 

Thus  one  of  the  most  important  duties  of  Thompson- 
Starrett's  "chasing  department"  is  to  visit  regularly 
the  sub-contractors  and  to  report  exactly  how  their 
work  stands  with  reference  to  the  time  schedule. 

211.  How   to   route   office   work. — The  New  York 
Clearing  House  is  a  good  example  of  the  value  of  rout- 
ing in  office  work.     Each  bank  has  a  numbered  desk, 
and  is  represented  by  two  men,  a  delivery  clerk  and  a 
settling  clerk.    The  settling  clerk  remains  at  the  bank's 
desk  and  receives,  records,  and  receipts  the  checks  re- 
turned by  the  other  banks.    The  delivery  clerk  takes  his 
place  in  front  of  his  bank's  desk  and  on  the  manager's 
signal  moves  to  the  desk  on  his  left,  delivers  the  pack- 
age of  checks,  drafts,  etc.,  drawn  on  that  bank  and  de- 
posited in  his  own  bank  and  after  receiving  a  receipt 
for  the  package  moves  forward  to  the  next  desk,  and  so 
around  the  room,  until  he  circles  the  whole  room  and 
returns  to  his  own  desk.    All  the  delivery  clerks  move 
simultaneously  and  by  this  method  the  banks  are  able 
to  exchange  over  $300,000,000  in  about  ten  minutes. 

212.  Time  schedule  of  the  Clearing  House. — The 
dispatcher  is  the  manager  of  the  Clearing  House.    He 
directs  the  operations  from  his  raised  balcony  at  the  end 
of  the  room. 

9:59  Clerks  must  be  in  their  places.  Failure  to 
be  punished  by  fine. 

10:00  Delivery  starts. 

10:45  Time  up  for  making  proof.  Fines  will  be 
imposed  for  all  mistakes  remaining  un- 
located. 

11:15  Fines  will  be  doubled  for  all  mistakes  re- 
maining unlocated. 

12:00  Fines  will  be  quadrupled  for  all  mistakes 
remaining  unlocated. 


426  BUSINESS    MANAGEMENT 

1 :30  Time  up  for  settling  debit  balances.  A  fine 
will  be  imposed  on  all  debtor  banks  who 
have  failed  to  settle  their  account  with  the 
Clearing  House. 

1 :30  Credit  balances  will  be  paid  by  the  Clearing 
House  except  that  no  credit  balances  will 
be  paid  until  all  the  debit  banks  have  set- 
tled. 

The  efficiency  of  this  schedule  is  proved  by  the  fact 
that  although  the  annual  clearings  have  exceeded  $100,- 
000,000,000,  the  total  of  all  the  fines  imposed  have  never 
exceeded  $1,422  a  year  (1889)  and  have  fallen  as  low 
as  $280  a  year  (1904). 

213.  How  organization  saves  time. — The  purpose  of 
organizing  is  to  enable  each  employe  to  work  under  the 
best  possible  conditions  of  team-play.     The  manage- 
ment should  remove  all  obstacles  to  the  workman's  full 
performance  and  supply  all  the  aids  necessary.     De- 
lays not  only  waste  the  workman's  time  but  shut  down 
his  machine.     It  is  well  to  remember  that  an  employe 
is  not  working  for  himself,  and  any  assistance  which 
an  employer  can  give  him  enables  him  to  do  this  work 
more  intelligently. 

The  workman  needs  certain  elements  in  doing  his 
work.  These  include  power,  machinery,  tools,  materials 
and  the  cooperation  of  the  management  and  his  fellow 
employes.  The  need  for  supplying  machines  and  power 
is  so  obvious  as  to  hardly  need  mention.  What  needs 
emphasis  is  that  the  workman  must  be  continuously 
supplied  with  power  and  equipment,  in  other  words, 
that  he  be  protected  from  delays  due  to  break-downs, 
etc. 

214.  Substitute  power  equipment. — The  commonest 
method  of  guarding  against  power  shortage  is  by  the 


SAVINGS    IN    TIME    AND    MATERIALS        427 

provision  of  substitute  power  equipment.  Many  of  the 
New  England  mills  operated  by  water  power  find  it 
necessary  to  have  steam  plants  to  help  out  during 
periods  of  drought.  Similarly  many  concerns  in  New 
York  City  using  electric  power  find  it  advisable  to 
continue  their  old  engine  equipment,  even  though  the 
Edison  Company  offers  to  buy  it  up. 

Substitution  is  a  valuable  preventive  in  all  lines,  even 
though  the  substitute  is  more  expensive  than  the  thing 
it  replaces.  The  difference  in  cost  will  be  more  than 
offset  by  the  saving  of  time,  the  most  expensive  factor 
in  business. 

215.  Equipment  "tickler." — An  ounce  of  prevention 
is  worth  a  pound  of  cure.     The  most  efficient  mainte- 
nance is  the  replacing  of  a  part  before  it  actually  breaks. 
A  tickler  system  is  a  valuable  aid.     The  best  type  of 
tickler  is  one  which  has  a  portfolio  for  each  day  in  the 
year  which  should  be  large  enough  to  insert  all  re- 
minders.    Notices  should  be  placed  in  the  tickler  in 
advance  to  come  out  at  proper  intervals  throughout 
the  year  for  the  examination  and  repairs  at  stated  in- 
tervals of  parts  of  machines,  boilers,  engines,  belts,  etc., 
likely  to  wear  out  or  give  trouble 

216.  Other  methods  to  avoid  shut-downs. — Another 
method  is  the  annual  shut-down  of  the  plant  as  prac-  \ 
ticed  by  the  National  Cash  Register  Company,  the 
Remington  Typewriter  Company  and  other  large  con- 
cerns.   All  the  operators  are  given  their  vacations  at  the 
same  time,  the  plant  shuts  down  and  the  entire  equip- 
ment is  overhauled.     In  the  steel  industry  it  has  been 
found  advisable  to  relieve  the  furnaces  each  Sunday, 
whether  they  need  it  or  not,  so  as  to  avoid  their  burn- 
ing out  during  the  week.     In  the  same  way  ships  find 
it  advisable  to  overhaul  all  machinery  while  in  port  and 


428  BUSINESS    MANAGEMENT 

to  replace  worn  parts  even  though  they  might  last  an- 
other trip,  rather  than  take  chances  on  breaks  in  mid- 
ocean. 

No  matter  how  carefully  things  are  watched,  occa- 
sional break-downs  are  bound  to  occur  and  the  best  way 
to  minimize  the  loss  is  to  be  prepared  for  them.  The 
stock  room  should  always  carry  a  stock  of  repair  parts, 
and  the  plant  should  have  adequate  wrecking  equip- 
ment, such  as  traveling  cranes  and  hoists  for  taking 
out  and  replacing  the  broken  machinery. 

217.  Stock-keeping  system  a  necessity. — In  order  to 
guarantee  sufficient  and  proper  tools  and  materials,  a 
modern  stock-keeping  system  is  essential.  The  duty  of 
a  stock  or  tool  department,  as  described  by  Harrington 
Emerson,  is  to  supply  the  right  material,  at  the  right 
place,  at  the  right  time,  in  the  required  quality,  in  the 
minimum  necessary  quantity  and  at  the  lowest  cost. 
In  addition  to  preserving  the  materials  from  deteriora- 
tion, loss  and  waste,  the  stock-keeper  must  anticipate 
the  shop's  needs  so  as  to  prevent  the  loss  of  time  in 
waiting  for  supplies.  The  supplies  are  furnished  to  the 
workmen  at  his  machine  or  desk  and  he  is  not  allowed 
to  leave  it.  His  duty  is  to  run  that  machine,  for  when 
he  is  away  getting  supplies  or  gossipping  with  other 
workmen  at  the  storeroom  window,  his  work  is  being 
neglected. 

The  tool  room  is  in  charge  of  a  tool  expert  who  has 
the  care  of  all  tools  and  the  sharpening  and  keeping 
them  in  shape.  No  workman  is  allowed  to  stop  and 
sharpen  his  own  tools.  He  must  call  for  a  new  one. 
In  fact,  he  is  supplied  with  a  call  bell  so  that  he  does 
not  have  to  go  after  the  tool  but  has  the  tool  brought 
to  him.  The  workman  quickly  realizes  the  justice  of 
this  plan,  and  when  he  knows  his  bonus  depends  on  it, 


SAVINGS    IN    TIME    AND    MATERIALS        429 

it  is  interesting  to  see  how  he  makes  the  helpers  step 
around.  Some  companies  even  go  so  far  as  to  supply 
to  each  man  a  standard  kit  of  hand  tools  which  he 
must  use  constantly  and  a  locker  in  which  to  keep  them, 
instead  of  letting  him  furnish  his  own.  For  these  he 
gives  his  receipt,  promising  to  return  them  or  their 
value  on  leaving  the  company's  employ.  The  advan- 
tages of  this  method  are : 

1.  It  reduces   the  number  of  tools  required. 

2.  It  enables  the  shop  to  obtain  exact  standards. 

3.  It   assists   the   shop   in   dictating  the   exact 
method  of  doing  the  work. 

218.  Three  rules  of  store-keeping. — The  interest  on 
the  capital  released  by  a  maximum  and  minimum  stores 
system  will  often  pay  the  entire  expense  of  the  depart- 
ment.   Store-keeping  is  commonly  broken  up  into  tools, 
rough  stores  or  raw  materials,  and  finished  stores  ready 
for  shipment.     Often  it  is  much  further  divided  into 
finished  parts  waiting  assemblage,  or  other  grouping,  as 
occasion  demands.     However,  the  principles  of  han- 
dling these  classes  are  the  same  and  very  simple. 

There  are  only  three  operations  in  store-keeping :  the 
receipt  of  goods,  the  issuance  of  goods  to  workmen  and 
the  preservation  of  the  remainder  on  hand.  There  are 
only  three  rules  to  stock-keeping: 

1.  A  receipt  is  to  be  given  for  all  goods  received. 

2.  A  receipt  is  to  be  taken  for  all  goods  delivered. 

3.  Some  one  must  be  responsible  for  stores  on 
hand,  just  as  a  cashier  is  held  responsible  for  all 
cash. 

219.  Receiving  supplies. — Goods  are  received  from 
only  three  sources.     The  first  and  by  far  the  largest 
portion  is   purchased    from   outsiders.      Before   being 


430  BUSINESS    MANAGEMENT 

placed  in  stock  these  goods  must  be  carefully  checked 
as  to  quantity  and  quality,  for  after  they  are  placed  in 
stock  their  identity  is  lost.  In  order  that  the  receiving 
clerk  may  do  this  intelligently  he  must  be  supplied  with 
a  duplicate  copy  of  the  purchase  order.  Where  he  does 
not  have  such  a  copy  he  is  bound  to  accept  shortages 
and  wrong  goods.  The  discrepancy  may  be  subse- 
quently caught  by  the  accounting  department,  in  check- 
ing his  receipts  with  the  original  orders,  but  after  the 
goods  have  been  received  and  placed  in  stock  it  is  much 
more  difficult  to  rectify  mistakes  and,  consequently,  it  is 
less  likely  that  any  attempt  will  be  made  to  do  so.  It  is 
customary,  however,  to  leave  off  the  price  which  does 
not  concern  the  store-keeper. 

Some  suspicious  purchasing  agents  blank  the  quan- 
tity, thus  making  sure  that  the  receiving  clerk  actually 
checks  the  quantity  received.  In  all  cases  it  is  necessary 
to  give  the  unit  of  measure,  l/o"  nickel-plated  ells  are 
purchased  by  the  piece,  %"  galvanized  ells  by  the 
pound;  unless  the  order  states  which  unit  is  employed 
the  check  may  be  entirely  useless,  with  no  second  check- 
ing possible.  Where  goods  are  purchased  or  issued  by 
weight  the  stock  clerk  should  be  supplied  with  a  scale. 
This  seems  obvious  yet  such  simple  provisions  are  often 
neglected.  The  best  practice  is  to  have  two  scales,  one 
for  heavy  weights  and  one  for  small,  thus  securing  the 
maximum  accuracy. 

Some  accountants  advocate  placing  all  goods  re- 
ceived for  whatever  purpose  in  stock  and  then  charging 
them  as  issued.  This  is  unnecessary.  Where  goods  are 
ordered  for  special  purposes  it  is  much  more  direct  to 
charge  them  at  once  to  that  purpose.  The  order  should 
specify  for  what  they  are  to  be  used  and  where;  so 
that  the  receiving  clerk  may  be  able  to  forward  them 


SAVINGS    IN    TIME    AND    MATERIALS        431 

to  the  proper  department  at  once,  thus  insuring  a  mini- 
mum amount  of  handling  and  delay. 

There  are  two  methods  of  issuing  receipts  for  goods 
received.  One  is  to  issue  a  formal  receipt  to  the  one 
making  the  delivery.  This  receipt  gives  the  order  num- 
ber, the  date  when  the  article  was  received  and  a  de- 
scription. A  carbon  copy  is  sent  to  the  purchasing 
department.  The  second  method  is  to  O.  K.  and  re- 
turn the  stockroom  copy  of  the  original  purchasing 
order.  The  second  method  would  appear  the  better 
especially  in  small  concerns,  in  that  it  reduces  the 
clerical  work  both  in  receiving  and  in  checking  bills. 
The  practice  is  however  divided.  One  company,  for 
instance,  uses  the  original  order  in  its  electrical  depart- 
ment, but  independent  receipts  for  its  general  pur- 
chasing. 

The  second  source  of  supply  is  goods  manufactured 
for  stock.  The  production  order  should  cover  this  class 
without  any  additional  formalities.  The  third  source  is 
unused  materials  returned  by  workmen.  A  credit  mem- 
orandum should  be  issued  for  this  class  of  receipts. 
They  should  be  distinguished  from  requisitions  by  the 
color  of  the  paper  or  printing.  A  common  custom  is 
to  use  red  ink  for  all  credit  items  so  as  to  prevent  con- 
fusion. 

220.  Issuing  supplies. — Tools,  as  a  rule,  are  easily 
distinguishable  from  materials;  but  they  run  together 
in  such  articles  as  brushes,  files  arid  rubber  boots.  Al- 
though generally  considered  as  tools  they  are  worn  out 
so  quickly  that  many  managers  invariably  classify  them 
as  materials  and  charge  them  out  as  such.  Each  of 
these  three  classes  of  goods — materials,  consumable 
tools,  tools — should  be  distinguished  and  issued  ac- 
cordingly. 


432 


BUSINESS    MANAGEMENT 


221.  How  to  use  requisitions. — There  are  two  sys- 
tems of  issuing  materials.  The  first  corresponds  with 
banking  practice.  If  a  depositor  wishes  cash  at  a  bank 
he  must  issue  a  "counter  check"  on  the  paying  teller. 


omci N AL    RE^UISITION  No-  fOR  DEPAI™T  SUPPLIES 

TO  DH»T Please  furnish  the  following  for  Department 

Quantity  DESCRIPTION  Weight.  Iks.    Price 

1 
2 
3 

4 
5 
6 

7 
8 

Date  Wanted          Date  of  Requisition        Goods  Delivered  Entered  Entered  Entered 

Stores  Ledger  Stock  Ledger  Cost  Dept. 

If  impossible  to  fill'  ' 
this  requisition  by 
the  above  date  no- 
tify   this   depart- 
ment immediately.  foreman 


FIGURE  22. — REQUISITION  FORM. 


This  is  the  requisition  system.  The  store-keeper  issues 
stores  on  the  presentation  of  a  regular  order  or  requisi- 
tion signed  by  any  responsible  person.  (Figure  22.) 
In  office  stock-keeping  it  is  often  advisable  to  combine 
the  requisition  with  the  stock  ledger  by  providing  col- 
umns in  the  ledger  for  the  name  of  the  person  authoriz- 


SAVINGS    IN    TIME    AND    MATERIALS 

ing  issue  and  the  signature  of  the  receiver.  This  lessens 
the  clerical  work  and  as  all  office  supplies  are  charged 
to  expense  there  is  no  object  in  charging  the  items 
separately. 

222.  Bill-of -materials. — The    second    method    is    to 
issue  the  materials  called  for  by  a  bill-of-material  pre- 
pared  by   the  designing  or   production   departments. 
This  has  the  advantage  of  more  closely  approximating 
the  actual  requirements  and  so  conserving  material.    It 
assists  the  store-keeper  in  keeping  up  his  stock  and 
preparing  for  future  requirements.     It  lessens  the  ac- 
counting because  it  eliminates  the  listing  and  totaling 
of  many  small  individual  requisitions. 

223.  Combination    systems. — Other    systems,    how- 
ever, use  a  combination  of  the  two.     The  bill-of-ma- 
terial should  be  the  general  practice  with  the  requisi- 
tion as  the  flexible  element  to  meet  emergencies  and  to 
offset  clerical  errors  in  bills.     Some  managers  think  it 
is  better  policy  to  issue  material  when  called  for  by  a 
responsible  department  foreman  and  adjust  later  any 
discrepancies  between  bills-of-material  or  other  speci- 
fications and  the  foreman's  statement  as  to  his  require- 
ments.   Under  no  circumstances  should  production  be 
stopped   pending   adjustment    of   technicalities   as   to 
quantity  of  material.1     If  a  foreman  is  to  be  held  to 
results  he  must  be  given  a  certain  amount  of  freedom. 
Under  either  method  the  man  actually  receiving  the  ma- 
terials should  also  be  required  to  sign  for  them  so  that 
he  can  be  required  to  explain  any  over-issue  which  may 
occur. 

To  secure  a  new  consumable  tool  the  workman  must 
return  the  worn-out  tool  he  has.  To  get  a  new  brush, 
for  instance,  he  must  return  the  old  one,  to  get  a  new 

1  Diemer,  "Factory  Organization,"  p.  118. 
II— 28 


BUSINESS    MANAGEMENT 

pair  of  boots  he  must  return  the  worn-out  pair.  This 
prevents  the  workman  losing  his  tools  and  getting  new 
ones  from  the  storeroom,  and  also  gives  the  purchas- 
ing department  a  basis  for  judging  of  the  wearing 
quality  of  the  goods.  Replacement  of  defective  ma- 
terials and  issues  of  materials  on  account  of  spoiled 
work  should  be  made  by  this  method. 

224.  Complete  and  simple  system. — The  J.  L.  Mott 
Company's  tool-room  system  is  complete  and  simple. 
Each  man  is  given  12  checks  bearing  the  same  num- 
ber and  specially  made  from  a  reversed  steel  die  with 
the  firm's  initials  so  as  to  prevent  the  possibility  of  their 
being  duplicated.  Each  tool  in  the  department  is  rep- 
resented by  a  3x5  filing  card.  When  there  is  more  than 
one  tool  of  a  kind  there  are  a  corresponding  number 
of  cards.  A  two-drawer  card  index  cabinet  is  used. 

In  drawer  No.  1  the  guide  cards  represent  the  shelv- 
ing, bins,  drawers,  etc.,  of  the  tool-room.  Behind  these 
the  tool  cards  are  placed  correspondingly.  In  drawer 
No.  2  there  is  a  guide  card  for  each  man  numbered  to 
correspond  with  his  checks.  When  a  man  presents  his 
check  at  the  window  for  a  tool,  the  check  is  hung  on  the 
check  board  and  the  tool  card  is  taken  from  its  regular 
place,  drawer  No.  1,  and  placed  back  of  the  workman's 
guide  card  in  drawer  No.  2.  When  the  tool  is  returned 
the  man  receives  his  check  and  the  tool  card  is  put  back 
in  its  proper  place  in  drawer  No.  1.  If  tools  are  broken 
or  lost  the  card  is  taken  out  of  drawer  No.  1  and  after 
being  marked  "broken"  or  "lost"  is  placed  behind  a 
guide  marked  "broken  or  lost"  in  drawer  No.  2.  Thus 
the  checkboard  shows  at  a  glance  how  many  tools  a  man 
has  and  the  total  number  of  tools  out.  Drawer  No.  2 
shows  what  tools  are  in  the  shop  without  referring  to 
the  shelves. 


SAVINGS    IN    TIME    AND    MATERIALS        435 

225.  Single  and  double  check  system. — The  simplest 
method  of  issuing  tools  is  to  give  each  workman  a 
supply  of  brass  checks,  say  ten.    When  the  man  gets  a 
tool  he  hands  in  a  check  which  is  substituted  for  the 
tool.    This  is  the  single  check  system. 

In  the  double-check  system,  which  is  the  common 
practice,  each  man  is  represented  by  two  adjacent  hooks 
on  the  tool-room  checkboard.  Ten  round  checks  are 
issued  to  the  man  when  he  starts  work  and  ten  square 
checks  bearing  the  same  number  are  hung  on  one  of 
his  hooks.  When  he  calls  for  a  tool  he  presents  one  of 
his  round  checks.  This  is  hung  on  the  vacant  hook. 
At  the  same  time  one  of  the  square  checks  is  taken  off 
and  placed  in  the  tool  rack,  case  or  drawer  from  which 
the  tool  is  taken.  When  he  returns  the  tool  he  is  given 
back  his  round  check,  and  the  square  check  is  taken 
from  the  rack,  case  or  drawer  into  which  it  had  been 
placed  as  a  substitute  for  the  tool.  This  system  enables 
the  tool-room  foreman  to  tell  by  the  number  of  round 
checks  hanging  on  any  man's  hook  just  how  many  tools 
he  has  out,  but  it  does  not  show  what  tools  they  are  as 
in  the  Mott  Company's  system.1 

226.  Responsibility  for  remainder  on  hand. — In  or- 
der that  the  stock-keeper  may  be  held  responsible  for 
the  stock  and  tools  on  hand  he  must  have  complete 
authority.     The  stock-room  must  be  under  lock  and 
key  and  no  one  except  the  store-keeper  allowed  access. 
This   is   essential.     Unless  he  is  thus  protected,  the 
store-keeper   cannot   justly   be   held   accountable    for 
the  stores.     If  two  men  have  joint  charge,  each  can 
blame  the  other  and  it  is  never  possible  to  place  the 
responsibility  absolutely.     Thus  we  see  separate  cash 
registers  in  large  stores.    Each  clerk  has  a  cash  drawer 

1Diemer,  "Factory  Organization,"  p.  159. 


456  BUSINESS    MANAGEMENT 

of  his  own  and  so  is  responsible  for  any  shortage  in  his 
own  drawer. 

227.  Stock-room  protects  goods. — The   stock-room 
must  also  protect  goods  from  depreciation.    Only  heavy 
goods  of  little  value  should  be  stored  out  of  doors  and 
these  protected  from  the  weather  by  sheds  or  tarpaulins. 
Finished  surfaces  should  be  greased  even  in  the  house 
to  prevent  rust.     The  Robert  Gair  Company,  paper 
goods  manufacturers,  state  that  one  of  the  advantages 
of  their  new  concrete  building  is  that  it  saves  fully 
$5,000  a  year  in  vermin  losses. 

Fire  is,  however,  the  main  cause  of  loss  and  special 
precautions  should  be  taken,  especially  for  goods  of 
value  and  all  records.  Thus  in  Armour  and  Com- 
pany's office  building  and  in  other  modern  buildings 
there  is  a  built-in  fire-proof  vault  for  office  records,  and 
in  the  American  Bridge  Company's  drafting  room  a 
fire-proof  vault  for  drawings.  This  practice  is  becom- 
ing universal.  Where  records  and  drawing  are  not 
thus  protected  a  duplicate  set  should  be  kept  somewhere 
else  as  an  insurance  measure. 

To  prevent  goods  being  kept  too  long  the  Water- 
town  arsenal  introduced  the  so-called  two-bin  system. 
Two  bins  A  and  B  are  provided  for  each  article. 
While  the  goods  in  A  are  being  used  all  new  goods  re- 
ceived are  put  in  B.  When  A  is  empty,  B  is  started 
and  new  goods  are  put  in  A.  Thus  the  material  is  used 
in  the  order  of  its  receipt  instead  of  old  material  col- 
lecting at  the  bottom  of  the  bin  as  is  the  case  where  new 
material  is  dumped  in  on  top  of  the  old.  The  two-bin 
system  is  especially  appropriate  in  handling  stationery 
which  yellows  with  age,  so  that  often  the  bottom  of  a 
pile  under  the  old  system  has  to  be  thrown  out. 

228.  Classification   by    kind. — Materials    should   be 


SAVINGS    IN    TIME    AND    MATERIALS        437 

classed  by  kind  not  by  size.  For  this  reason  some  unit, 
such  as  24  inches,  should  be  adopted  and  the  shelves 
divided  into  square  compartments.  These  compart- 
ments can  then  be  subdivided  as  required  without 
changing  the  shelving.  There  are  two  systems  of  such 
arrangement. 

The  way  to  number  bins  in  stock  warehouses  is  to  divide 
the  whole  cubic  volume  of  the  house  into  spaces  and  allot  a 
certain  number  of  spaces  to  each  volume,  whether  the  volume 
is  to  contain  large  or  small  bins.  In  this  way,  no  matter 
what  changes  or  rearrangement  in  the  sizes  of  the  bins  there 
may  be,  the  same  number  will  always  designate  the  same  space 
in  the  warehouse.  For  instance,  all  bins  numbered  in  the  ten 
thousands  would  represent  bins  in  aisle  10,  those  beginning 
with  10,500  representing  the  bins  on  one  side  of  the  aisle,  and 
those  beginning  with  10,000  the  bins  on  the  opposite  side  of 
the  aisle.  If  the  bins  are  large,  of  course,  a  great  many  num- 
bers will  not  be  used.  This  is  practically  the  same  principle 
that  has  been  finally  adopted  as  the  most  satisfactory  method 
of  numbering  houses  in  city  streets,  and  will  be  found  equally 
satisfactory  in  storage  and  warehouses.1 

The  placing  of  even  numbers  on  one  side  of  the  aisle 
and  odd  on  the  other  as  is  done  in  the  numbering  of  city 
streets  and  theater  chairs  has,  however,  some  advan- 
tages over  this  method. 

It  is  also  convenient  to  place  those  goods  which  are 
much  used  near  the  delivery  point  and  those  which  are 
seldom  used  at  the  back  in  the  storeroom.  Where  this 
system  is  adopted  it  is  necessary  to  have  "finding  lists" 
or  card  indexes  giving  the  location  of  the  supplies. 
Where  the  stock-room  is  large  or  there  are  several 
floors,  it  will  save  time  to  have  several  such  finding  lists 
located  at  convenient  points. 

1Diemer,  "Factory  Organization,"  p.  114. 


438  BUSINESS    MANAGEMENT 

The  second  method  is  alphabetical  by  the  material  or 
tool  symbols.  These  symbols  are  marked  on  the  end  of 
the  tiers  so  that  any  one,  even  if  not  familiar  with  the 
stock-room  layout,  can  find  anything  in  stock  exactly 
as  he  would  locate  a  name  in  the  city  directory.  This 
system  follows  the  general  trend  to  simplify  the  work 
and  eliminate  the  index  which  is  discernible  in  all  lines 
in  loose  leaf  ledgers,  in  card  systems  and  in  the  open- 
shelf  fiction  classification  of  the  public  libraries.  The 
procedure  is  the  same  whether  a  lead  pencil  or  a  blow 
valve,  a  box  of  envelopes  or  a  rough  casting  is  wanted. 
Of  course  some  kind  of  a  symbol  system  is  a  prime 
requisite. 

229.  Size  materials  when  checking. — The  handling  of 
materials  is  facilitated  by  the  sizing  of  materials  the 
first  time  they  are  checked  and  so  eliminating  the  need 
of  doing  it  again.     The  Salford  Rolling  Mills,  Man- 
chester, paint  the  weights  on  all  castings  when  they 
leave  the  foundry.    The  Thompson- Starrett  Company 
paint  the  length  of  all  heavy  timber  on  both  ends  so 
that  one  can  tell  just  what  is  in  the  yard  by  looking  at 
the  ends  of  the  piles.     Some  companies  indicate  the 
kind  of  steel  by  painting  one  end  a  certain  color.    The 
Tabor  Manufacturing  Company  of  Philadelphia  paint 
their  bolts,  washers,  clamps,  etc.,  used  in  setting  up 
work  in  machine  tools,  bright  colors,  such  as  red,  blue, 
green,  etc.,  which  immediately  designates  them  as  tool 
equipment.    Adequate  hoists,  tool  boxes,  etc.,  for  han- 
dling the  material  should  be  provided. 

230.  Stock  ledger  and  inventory-taking. — The  actual 
stock  ledger  is  usually  kept  in  the  dispatching  or  plan- 
ning department  to  facilitate  routing.    Where  the  sys- 
tem of  dispatching  has  not  yet  been  introduced,  the 


SAVINGS  IN    TIME    AND    MATERIALS        439 

stock  ledger  is  usually  kept  in  a  card  or  loose  leaf 
ledger. 

Standard  designs  are  carried  in  stock  by  most  of  the 
manufacturers  of  loose  leaf  and  card  systems.  A  use- 
ful stock  form  of  the  C.  E.  Sheppard  Company  is 
shown  in  Figure  23.  The  sequence  of  the  items  varies 
in  different  companies.  C.  B.  Cottrell  &  Sons  place 
the  balance  between  the  received  and  delivered  columns. 
C.  W.  Hunt  Company  place  the  order  number  after 
the  amount  delivered  but  before  the  balance  on  hand. 
The  Wells  Brothers  Company  provide  separate  date 
columns. 

In  order  to  verify  the  stock  on  hand,  the  balance-of-stores 
clerk  spends  an  hour  a  day  in  the  storeroom  checking  up. 
Each  day  he  takes  a  certain  number  of  items  and  counts  and 
weighs  them,  comparing  the  results  with  the  figures  on  his 
sheets.  To  go  through  the  whole  stock-room  requires  six 
months,  so  that  during  the  year  two  full  inventories  are 
taken.1 

Another  method  is  to  check  each  article  when  the 
quantity  on  hand  is  low  and  so  involves  a  minimum  of 
work.  Slight  discrepancies  are  bound  to  occur,  be- 
cause the  fallibility  of  the  stock  clerk  is  far  more  com- 
mon than  the  infallibility  of  records.  When  these  dis- 
crepancies are  marked  or  appear  as  continual  shortage* 
in  the  more  valuable  materials  they  should,  of  course, 
be  investigated,  but  in  general  they  should  simply  be 
written  off.  In  either  case,  that  bugbear,  the  annual 
"taking  account  of  stock,"  is  entirely  unnecessary. 

231.  Provide  a  surplus  of  the  less  expensive. — If  two 
men  are  mutually  dependent  upon  each  other,  the  less 
expensive  must  wait  upon  the  more  expensive.  The- 

1  E.  M.  Woolley  in  System,  June,  1911. 


440 


BUSINESS    MANAGEMENT 


23 


h 


FROM 
WH 


NO. 
OUT 


OR 
IN 


o  S 


SAVINGS    IN    TIME    AND    MATERIALS        441 

oretically  it  should  be  possible  for  them  to  exactly  tie 
into  each  other.  Practically  it  is  not  so.  Unless  the 
cheaper  serves  the  more  expensive,  the  more  expensive 
man  or  machine  will  do  the  waiting.  For  instance,  if 
men  are  loading  trucks  with  dirt,  it  should  be  possible 
to  proportion  them  exactly  so  that  one  truck  would 
drive  on  to  be  loaded  while  the  one  ahead  was  driving 
away  full.  As  an  actual  fact  it  is  not  possible  and  un- 
der such  circumstances  the  men  will  be  waiting  for  the 
trucks  or  the  trucks  will  be  waiting  to  be  loaded  or  both 
will  be  waiting  for  each  other  during  different  parts 
of  the  day.  It  is  therefore  necessary  to  decide  which  of 
the  two  is  the  more  expensive,  and  supply  either 
enough  men  to  keep  the  trucks  moving  or  enough  trucks 
to  keep  the  men  busy. 

This  applies  throughout  business.  If  the  man's  time 
is  more  valuable  than  the  material  used,  he  must  be 
given  a  leeway,  otherwise  he  will  have  to  adapt  him- 
self to  the  material.  If  the  material  is  more  valuable 
than  the  man's  time,  he  must  adapt  himself  to  the  ma- 
terial, otherwise  he  will  waste  it.  This  is  the  case  in 
gold-smithing,  and  the  workbench  is  laid  out,  not  to 
convenience  the  man,  but  to  save  the  gold  filings.  This 
reasoning  applies  with  special  force  to  office  work.  If 
an  executive's  time  is  worth  more  than  a  clerk's  he 
must  be  supplied  with  a  sufficient  clerical  force,  other- 
wise he  will  be  doing  the  clerical  work  himself  at  the 
expense  of  more  important  work.  The  less  expensive 
must  wait  upon  the  more  expensive. 

232.  Small  savings.  -  -  Manufacturing  and  other 
forms  of  business  at  some  time  meet  a  stage  in  their 
development  when  their  profits,  so  far  as  these  depend 
upon  the  cutting  of  their  costs,  must  be  made  through 
small  economies.  Transforming  industries  are  similar 


BUSINESS    MANAGEMENT 

to  agriculture,  mining  and  lumbering  in  that  they,  too, 
have  their  day  of  big  profits  which  were  made  through 
an  extravagant  use  of  materials,  new  machinery  and 
cheap  power.  But  a  time  comes  when  the  factory  or 
store  must  be  worked  as  intensively  as  the  farm.  "The 
Gleaners"  as  pictured  by  Millet  represents  not  merely 
a  laborer  toiling  but  an  economic  condition  which  de- 
mands that  no  head  of  grain  be  wasted.  The  time  has 
likewise  come  in  our  American  factories,  mills  and  busi- 
ness homes  for  the  appearance  of  "The  Gleaner."  The 
by-products,  the  scrap-pile  and  the  ash-heap  must  be 
made  to  contribute  to  success.  The  steel  plant  at  Gary 
is  described  as  "the  result  of  a  thousand  short  cuts." 

In  some  offices  every  employe  is  required  to  tear  each 
memorandum  before  throwing  it  into  the  waste  basket 
so  that  no  one  will  lose  time  in  taking  it  out  to  see  if  it 
contains  valuable  information.  Machine  time  has  been 
saved  because  its  work  has  been  facilitated  through  a 
careful  study  of  the  chemical  composition  of  the  metal 
on  which  it  worked  and  castings  have  been  reduced  in 
size  to  save  the  machine  in  finishing  them.  Designing 
apprenticeships  are  no  longer  solely  confined  to  the  of- 
fice. Out  of  a  seven  years'  training  four  years  are 
spent  in  the  shop.  Designs  must  be  made  to  meet  com- 
mercial conditions.  One  of  these  is  composition.  The 
designer  must  keep  the  element  of  cost  in  mind.  He 
must  effect  a  saving  if  he  can. 

283.  Office  work. — Office  work,  as  a  rule,  is  particu- 
larly open  to  savings  by  reduction  in  the  time  required. 
Many  superintendents  keep  an  extra  timekeeper  to 
figure  costs  for  the  week.  These  same  costs  are  often 
figured  in  the  main  office  for  the  higher  executives ;  thus 
two  men  are  paid  for  doing  the  same  thing.  One  or  the 
other  is  clearly  superfluous.  The  results  worked  out 


SAVINGS    IN    TIME    AND    MATERIALS        448 

for  any  one  man  in  the  office  should  be  in  such  form 
as  to  be  available  for  his  own  future  use  and  for  all  oth- 
ers wishing  the  same  information. 

In  estimating  haphazard  methods  are  no  longer  al- 
lowed, but  the  computations  are  carefully  worked  out 
in  books.  When  it  is  desirable  to  verify  the  results,  it 
is  much  simpler  to  check  the  computations  than  to  re-do 
them  as  would  be  necessary  if  done  on  scrap  paper. 
Moreover,  the  chances  of  locating  errors  are  greatly 
increased. 

The  perpetual  inventory  system  of  bookkeeping  by 
which  the  balance  is  brought  down  after  each  entry  is 
another  illustration.  Apparently,  this  involves  addi- 
tional labor.  The  saving  results  from  the  fact  that  the 
balance  is  taken  once  instead  of  every  time  one  has 
occasion  to  refer  to  the  account  as  formerly  and  the 
pencil  figuring  so  common  in  the  old-style  ledgers  is 
given  a  column  and  done  systematically. 

The  time  consumed  in  "hunting"  for  things  is  a  pure 
waste.  Pigeon-hole  desks,  deep  drawers,  disorganized 
stock-rooms  are  decidedly  out  of  date.  A  place  for 
everything  and  everything  in  its  place  is  a  great  time- 
saver. 

Another  step  forward  was  the  elimination  of  the  in- 
dex. With  the  modern  loose  leaf  and  card  ledgers, 
bookkeepers  are  able  to  turn  directly  to  an  account  in- 
stead of  first  looking  up  the  page  in  the  index.  Ency- 
clopedia filing  also  has  this  great  advantage  over  the 
numerical  system  and  is  in  general  much  to  be  pre- 
ferred. The  slogan  of  the  adding  machine  advertise- 
ments is,  "We  can  get  your  monthly  trial  balance  off 
three  days  sooner,"  or  "You  can  go  home  at  six  o'clock 
instead  of  eleven."  The  gain  effected  by  most  other 
office  appliances  is  a  saving  in  time. 


444  BUSINESS    MANAGEMENT 

234.  Unnecessary  shifting  involves  loss. — Shifting 
from  job  to  job  is  a  form  of  wasting  time  as  common  to 
the  office  as  to  the  shop.  Not  only  does  the  moving 
from  place  to  place  take  time,  but  there  is  always  a 
certain  amount  of  preparatory  work,  the  shifting  of  pa- 
pers, the  arranging  of  materials,  the  changing  of  ma- 
chines which  must  be  re-done  every  time  a  change  is 
made.  The  wisdom  of  our  ancestors  has  become  the 
rule  of  efficient  organization,  "Don't  make  two  bites  at 
a  cherry."  Where  shifting  of  large  gangs  is  unavoid- 
able, as  on  construction  work,  their  change  should  be 
made  if  possible  at  noon  or  the  men  instructed  to  re- 
port at  the  new  place  in  the  morning.  This  takes  ad- 
vantage of  the  natural  breaks. 

This  principle  applies  to  all  labor  paid  for  by  the 
week.  Mr.  Frank  Gilbreth's  manual  states  that  all 
foremen  and  others  paid  by  the  week  are  to  mend  tools, 
clean  stock-room  or  to  be  employed  in  some  similar  way 
on  rainy  days.  Most  office  employes  fall  in  this  class. 
In  many  seasonal  businesses  the  better  part  of  the  of- 
fice force  have  nothing  to  speak  of  to  do  for  three  or 
four  months  at  a  time.  As  much  work  as  possible  and 
vacations  should  be  thrown  into  these  slack  periods. 
When  work  of  minor  importance  comes  in  it  is  well  to 
list  it  and  keep  it  until  such  time  as  the  regular  work 
is  light.  In  enforcing  this  rule,  it  is  well  to  remember, 
however,  that  if  straight  time  men  are  allowed  nothing 
for  working  over-time  in  a  pinch,  it  is  only  fair  that 
they  be  allowed  compensating  time  off  when  things  are 
slack.  Even  where  men  are  employed  by  the  hour,  it 
is  better  if  possible  to  keep  them  working  on  fill-in 
work,  because  much  broken  time  causes  dissatisfaction, 
the  better  class  of  men  drift  to  where  they  can  earn 
steady  wages,  and  those  left  "soldier"  whenever  possi- 


SAVINGS    IN    TIME    AND    MATERIALS        445 

ble  to  prevent  running  out  of  work  and  being  laid  off 
for  a  time. 

235.  f< Fill-in"  work. — The  same  principle  applies 
even  more  forcibly  to  the  use  of  equipment,  for  equip- 
ment cannot  be  laid  off  during  slack  times.  In  a  ma- 
chine shop,  certain  equipment  is  absolutely  necessary 
even  if  the  quantity  of  work  is  not  sufficient  to  keep 
it  busy  all  the  time.  In  such  shops,  it  is  cheaper  to  use 
these  machines  during  their  otherwise  idle  time  on  some 
classes  of  work  for  which  they  are  not  especially  fitted, 
rather  than  to  buy  other  specialized  machinery  which 
would  do  the  work  more  efficiently  but  which  would 
also  be  idle  part  of  the  time.  This  has  led  to  the  custom 
of  fill-in  work.  The  planning  room  keeps  each  machine 
working  on  that  class  of  work  for  which  it  is  best  fitted, 
but  when  there  is  none  of  that  class  of  work  in  the  shop 
to  assign  to  it,  some  other  class  for  which  it  is  not  espe- 
cially fitted,  but  which  it  can  do,  is  assigned  to  it. 

To  conserve  time  by  utilizing  every  minute,  steel 
mills,  mining  operations,  foundation  works  and  many 
other  activities  which  are  run  under  heavy  expenses 
work  twenty-four  hours  a  day,  seven  days  a  week.  In 
outdoor  work  during  the  summer,  it  is  usually  light 
enough  to  run  two  eight-hour  shifts,  one  from  4  a.  m. 
till  noon,  and  the  other  from  noon  till  8  p.  m.,  without 
artificial  light. 

Two-way  hauling  is  another  illustration.  It  takes 
practically  as  much  time  to  come  back  empty  as  to  come 
back  full.  Contractors  count  on  this  in  making  prices, 
and  will  figure  much  closer  if  there  is  a  load  of  sand 
one  way  and  a  load  of  rubbish  the  other.  Companies 
shipping  west  can  usually  get  better  service,  because 
there  are  always  empty  cars  going  west  which  the  roads 
are  anxious  to  fill. 


446  BUSINESS    MANAGEMENT 

Power  companies  often  find  it  economical  to  make 
special  rates  for  consumers  who  agree  not  to  use  any 
power  during  the  time  of  the  peak  load  on  the  plant. 
The  peak  load  determines  the  maximum  the  company 
can  contract  to  supply  even  though  during  the  rest  of 
the  day  the  plant  will  be  running  below  capacity,  and 
they,  therefore,  can  readily  offer  a  better  price  to  stimu- 
late the  demands  at  times  of  low  ebb  for  capacity  which 
will  otherwise  be  wasted.  Such  low  priced  power  is  in 
the  nature  of  fill-in  work. 

Many  companies  make  a  practice  of  manufacturing 
an  "understudy  product"  or  contracting  at  cost  prices 
to  carry  them  through  financial  flurries,  not  with  the 
idea  of  making  a  profit  but  in  order  to  keep  even.  Nar- 
row markets  may  mean  ruin ;  narrow  markets  combined 
with  a  narrow  product  place  one  at  the  mercy  of  every 
passing  gale.  A  manufacturing  concern  that  makes  a 
very  heavy  steel  product  has  a  line  of  light  metal  goods 
that  go  to  wholly  different  markets.  During  the  last 
financial  disturbance  the  main  product  was  cut  off 
absolutely;  but  at  such  times  the  world  does  not  stop 
running.  This  concern's  foundry  and  machine  shops 
were  kept  sufficiently  busy  on  the  secondary  product 
to  pay  the  fixed  expense  on  the  whole  plant. 

Lesser  savings  are  also  often  possible  in  the  machines 
themselves.  Many  cutting  tools  are  found  on  examina- 
tion to  be  cutting  air  from  one-half  to  three-fourths  of 
their  stroke,  thereby  taking  from  two  or  three  times 
as  long  as  necessary.  Improvements  in  machinery  and 
methods  such  as  the  Taylor- White  high  speed  steels  are 
continually  reducing  the  time  taken  to  do  a  job. 

236.  Waste  motion. — In  ordinary  business  practice 
much  of  the  work  is  waste  motion.  Most  of  the  actual 
work  in  foot  pounds  done  by  a  bricklayer  is  consumed 


SAVINGS    IN    TIME    AND    MATERIALS        447 

in  lifting  the  brick  and  mortar  from  the  scaffold  to  the 
wall  as  with  each  stooping  he  must  lift  not  only  the  brick 
but  the  weight  of  the  upper  part  of  his  own  body.  If 
the*  scaffold  could  be  so  arranged  that  he  would  lift  the 
bricks  down  instead  of  up,  so  that  he  employed  the 
force  of  gravity  instead  of  working  against  it,  he  could 
set  many  more  bricks  a  day  and  still  be  less  tired  at 
night. 

Imperfect  work  is  a  common  cause  of  waste  material, 
for  usually  not  only  is  the  time  and  work  spent  on  the 
piece  wasted,  but  the  piece  has  to  be  scraped.  Careful 
inspection  is  essential  to  economical  manufacture.  Im- 
perfections due  to  workmanship  should  never  be  paid 
for,  as  the  practice  encourages  carelessness.  Cutting 
to  the  best  advantage  is  probably  the  most  fertile  field 
for  saving  material.  A  piece  of  goods  will  go  much 
further  when  the  patterns  are  dove-tailed  into  each 
other.  The  old-fashioned  buzz  and  gang  saws  wasted 
as  much  as  one-eighth  of  the  lumber  in  sawdust.  It 
is  only  recently  that  lumbermen  have  begun  to  cut  on 
the  ground  level  instead  of  waist  high  thus  saving  the 
stump.  Working  capital  can  often  be  scaled  down  by 
carefully  limiting  stock  and  credits  which  is  cutting 
capital  to  the  best  advantage. 

237.  Using  supplies  a  second  time. — The  2c  rebate 
on  the  delicatessen  bean  pan  and  the  $1.75  allowed  for 
the  return  of  the  Standard  Oil's  "holy  blue  barrel" 
and  the  lOc  for  the  return  of  a  cement  bag  show  like 
recognition  of  the  importance  of  using  the  same  ma- 
terial twice  wherever  possible.  Some  unions  oppose 
this  and  have  had  laws  passed  forbidding  the  second 
use  of  cigar  boxes. 

It  is  well  to  visit  the  scrap  heap  occasionally.  All 
old  bolts  should  be  collected,  An  old  man  in  some  out- 


448  BUSINESS    MANAGEMENT 

of-the-way  corner  of  the  shop  with  an  anvil  and  hammer 
can  straighten  these,  after  which  they  should  be  care- 
fully sorted  and  used  again.  If  the  threads  are  rusted 
or  broken  they  can  be  cut  off  and  re-threaded. 

By-products  are  probably  the  most  important  method 
of  utilizing  materials.  Cement  from  iron  furnace  slag 
was  first  made  because  the  slag  accumulated  so  fast 
that  disposing  of  it  was  expensive,  and  chemists  were 
given  the  job  of  finding  out  what  could  be  made  of  it. 
A  by-product  is  a  product  manufactured  to  utilize  cer- 
tain inseparable  parts  of  the  raw  materials  of  the  main 
product  which  would  otherwise  be  wasted.  Thus  gas 
is  a  by-product  of  the  iron  industry  and  coke  of  the 
city  gas  works.  The  extent  to  which  by-product  utiliza- 
tion is  carried  by  large  firms  is  exemplified  by  the  case 
of  coal  tar  products  which  shows  that  103  products  are 
made  from  coal  tar,  the  residuum  of  gas  and  coke 
works.  The  Standard  Oil  Company  in  addition  to 
making  220  grades  of  kerosene,  naphthas,  benzines,  and 
gasolines  make  994  different  kinds  of  paraffines,  waxes, 
candles  and  greases  from  the  residuum.  Where  the 
residuum  is  not  large  enough  to  justify  the  expense  of 
utilizing  it,  it  can  often  be  sold  as  it  is.  The  retail 
butchers  find  it  more  to  their  advantage  to  save  and 
sell  their  fat  than  to  make  soap;  and  the  great  United 
States  Steel  Corporation  finds  it  better  to  sell  coal  tar 
than  to  work  up  the  103  products  into  which  it  is 
eventually  made. 


CHAPTER   XII 

OFFICE    METHODS 

238.  Function  of  the  office. — In  its  usual  sense  the 
"office"  is  the  part  of  a  business  establishment  in  which 
the  administrative  and  clerical  work  is  performed.  That 
is  to  say,  if  the  vice-president  happens  to  have  charge 
of  the  factory,  his  headquarters  are  said  to  be  "in  the 
office."  The  sales  manager's,  advertising  manager's, 
treasurer's  and  accountant's  departments  are  also  re- 
garded as  parts  of  the  office.  But  for  our  purpose — 
that  of  laying  down  basic  principles  in  the  management 
of  the  office — we  must  adopt  a  different  point  of  view. 

It  has  already  been  explained  that,  generally  speak- 
ing, a  business  is  divided  into  four  basic  departments — 
the  production  department,  the  sales  department,  the 
financial  department  and  the  accounting  department. 
Each  has  its  own  specific  functions  to  perform.  The 
production  department  supplies  the  article  to  be  sold, 
the  sales  department  is  concerned  in  selling  it,  the  finan- 
cial department  collects  and  disburses  the  money  in- 
volved in  the  conduct  of  the  entire  business  and  the 
accounting  department  records  all  the  transactions, 
summarizes  the  facts  and  presents  the  results  in  state- 
ments and  reports  for  use  in  further  operations.  The 
office,  as  we  shall  have  to  regard  it,  performs  the  clerical 
work  required  by  these  four  departments.  In  the  pro- 
duction department,  records  of  orders,  of  quotations, 
of  invoices,  of  stock,  of  requisitions  and  the  like  are 
constantly  needed.  The  whole  attention  of  the  factory 
11—29  449 


450  BUSINESS    MANAGEMENT 

superintendent  or  manager  should,  theoretically,  be  de- 
voted to  the  efficient  production  of  goods.  This  calls 
for  the  use  of  all  his  skill  and  ability  in  the  handling 
of  machinery,  plant,  men  and  materials.  He  is  only 
interested  in  the  clerical  work  as  an  aid  in  the  per- 
formance of  his  duties.  When  about  to  purchase  a 
new  machine,  for  example,  his  interest  lies,  not  in  how 
the  quotations  are  filed,  but  in  the  bids  themselves.  Or 
if  the  factory  manager  is  uncertain  as  to  the  specifica- 
tions on  an  order  going  through  the  plant  for  one  of 
the  customers,  he  wants  the  original  order  when  he 
calls  for  it.  He  does  not  care  how  that  order  is  found, 
but  only  that  it  is  brought  to  him  promptly. 

Again  there  are  sales  records  and  statistics,  follow-up 
files,  prospect  lists,  clippings,  electros  and  other  data  of 
this  kind  which  must  be  cared  for.  The  sales  manager, 
like  the  factory  superintendent,  is  supposed  to  give  his 
whole  thought  and  attention  to  increasing  sales.  It  is 
necessary  that  the  sales  records  be  reliable  and  on  hand 
when  wanted.  Farther  than  that,  the  sales  official's 
interest  does  not  go. 

The  financial  department  also  has  its  records,  such 
as  credit  information,  list  of  delinquents,  and  the  like, 
upon  which  it  relies  in  conducting  its  operations.  The 
accounting  department  requires  sundry  clerical  work, 
such  as  billing,  filing  vouchers,  etc. 

In  addition,  the  four  departments  referred  to  receive 
and  send  out  mail  which  must  be  typewritten,  filed  and 
otherwise  handled.  There  are  other  details  incident  to 
the  routine  of  every  office,  such  as  the  operation  of 
duplicating,  addressing  and  other  machines,  attending 
to  callers,  errands  and  inter-office  communications. 

All  these  details  fall  within  the  scope  of  the  office 
proper.  From  a  management  point  of  view,  then,  the 


OFFICE    METHODS  451 

office  may  be  defined  as  that  part  of  a  business  organi- 
zation which  performs  the  purely  clerical  work  neces- 
sary in  the  conduct  of  the  whole  business. 

239.  Elements  of  management  applied. — The  same 
cardinal  elements  of  management  discussed  in  previous 
chapters  are  present  in  the  management  of  the  office. 
In  other  words,  we  face  the  problem  of  directing  forces 
or  energy  toward  the  fulfillment  of  a  purpose.  There 
are  both  kinds  of  energy — human  and  machine.  The 
purpose  of  the  office  is  to  provide  the  clerical  work 
necessary  in  the  conduct  of  the  entire  establishment. 
To  perform  this  work  expeditiously  and  efficiently  is  an 
element  in  the  profit -making  of  the  concern  in  the  same 
sense  that  increasing  sales  or  reducing  the  cost  of  pro- 
duction is  also  an  element. 

The  first  step  should  be  a  study  of  the  work  required 
of  the  office,  as  we  now  understand  the  term,  and  an 
analysis  of  the  amount  of  energy  available.  To  put 
the  matter  more  concretely,  we  may  compare  the  office 
manager's  work  with  that  of  a  contractor  about  to 
build  a  school-house.  His  plans  and  specifications  are 
laid  before  him.  He  knows  what  is  wanted.  He 
kn6ws,  too,  that  he  has  so  many  men,  so  many  dummy 
engines  and  so  on.  The  men  and  engines  represent  a 
given  amount  of  energy  which  the  contractor  measures 
by  the  amount  of  work  they  can  perform.  A  brick- 
layer can  lay  an  average  number  of  bricks  a  day;  a 
forty  horse-power  engine  can  move  an  average  number 
of  loads  a  day. 

The  office  manager,  in  a  similar  manner,  ascertains 
that  he  has  five,  six  or  more  departments  to  serve.  Each 
department  requires  certain  services  which  are  approxi- 
mately determinable.  These  services  are  the  "results" 
required  of  him.  He  studies  the  people  on  his  force 


452  BUSINESS    MANAGEMENT 

and  the  mechanical  appliances  at  his  command.  The 
efforts  the  two  put  forth  represent  the  energy  under 
his  control.  He,  too,  measures  energy  by  results.  That 
is  to  say,  a  typist  is  capable  of  turning  out,  say,  900 
lines  a  day;  a  duplicating  machine  will  produce  say 
35,000  form  letters  a  day. 

Knowing  what  the  office  is  capable  of,  with  its 
present  equipment  of  people  and  machines,  it  devolves 
upon  the  office  manager  to  determine  whether  the  ex- 
jsting  standards  are  sufficiently  high  and  where  possible 
to  raise  the  standards  through  the  introduction  of  new 
methods  or  a  better  grade  of  help  or  through  reorgan- 
izing the  work  where  reorganization  is  required.  This, 
really,  is  the  axis  around  which  all  the  office  manager's 
duties  revolve. 

240.  Office  head. — The  term  "office  manager"  has 
been  used  above.  Since  the  duties  properly  within  the 
scope  of  the  office  may  be  separated  from  other  duties 
and  since  the  management  of  the  office  may  be  con- 
sidered as  a  separate  function  it  would  seem  that  there 
should  be  an  official  who  is  specifically  responsible  for 
its  efficient  conduct.  Theoretically  this  is  true  and  in 
many  large  concerns,  such  as  the  Westinghouse  Air 
Brake  Company  and  branches  of  the  United  States 
Steel  Company,  there  is  actually  such  an  official.  In 
the  majority  of  cases,  however, — particularly  in 
medium  and  small  concerns, — this  duty  is  either  divided 
among  a  number  of  department  heads  or  is  only  one 
of  a  number  of  duties  assigned  to  an  officer  also  in 
charge  of  some  other  branch  of  the  concern's  activities. 
This  feature  is  considered  in  a  later  section  of  this 
chapter.  It  is  desirable,  before  proceeding,  to  inquire 
into  the  necessary  qualifications  of  the  person  or  per- 
sons who  are  charged  with  governing  the  office. 


OFFICE    METHODS  453 

We  have  seen  that  the  office  proper  is  in  close  touch 
with  every  department  in  a  business  establishment.  As 
a  matter  of  fact,  it  is  an  essential  to  the  efficient  con- 
duct of  these  departments.  What  would  be  easier,  for 
instance,  than  to  frustrate  an  important  plan  for  in- 
creasing sales  by  neglecting  the  clerical  features  of  the 
plan?  Or  if  the  financial  department  were  contemplat- 
ing a  special  campaign  to  stimulate  collections  during 
a  usually  "slow"  month,  the  person  in  charge  of  the 
clerical  work,  failing  to  comprehend  the  importance  of 
the  movement,  might  easily  cause  a  loss  of  several 
thousand  dollars  by  postponing  attention  to  certain 
details  in  favor  of  "more  pressing  things  to  be  done." 
It  is  highly  desirable,  then,  that  there  be  complete 
harmony  between  the  office  and  all  the  departments. 

There  is  a  corollary  to  this  conclusion.  The  persons 
in  charge  of  the  office  must  be  thoroughly  familiar  with 
the  purposes  and  policies  of  all  the  departments  and 
must  be  fully  aware  of  the  import  of  almost  every 
move  that  is  made  involving  clerical  work.  This  would 
hardly  be  possible  unless  these  persons  understand  the 
principles  that  underlie  the  conduct  of  business  gen- 
erally. What  the  sales  department  is  for  and  how  it 
operates  and  the  design  of  the  work  in  the  production, 
financial  and  accounting  departments  is  important 
knowledge  to  the  office  head.  He  should  also,  of  course, 
be  thoroughly  familiar  with  the  subject  of  organization 
and  management  and  should  be  in  touch  with  all  the 
modern  office  methods  and  devices.  In  addition  he 
should  possess  the  natural  qualifications  of  any  leader. 
Tact,  precision,  sympathy,  forcefulness  and  a  keen, 
accurate  perception  of  the  details  of  problems  pre- 
sented for  his  decision. 

241.  Selecting  and  handling  employes. — The  prob- 


454  BUSINESS    MANAGEMENT 

lem  of  directing  the  office  force  so  that  it  will  work 
harmoniously  and  with  maximum  efficiency  is  one  of 
the  hardest  to  solve.  Unlike  the  manufacturing  end 
of  the  business,  the  employes  of  the  office  cannot  be 
placed  upon  a  strictly  scientific  management  basis. 
The  work  is  too  varied,  requires  the  exhibition  of  more 
individual  intelligence  and  is  dependent  upon  too  many 
indeterminable  factors.  Yet  the  principles  of  efficiency 
are  as  capable  of  application  in  the  management  of  an 
office  as  they  are  anywhere  else. 

It  is  important,  first  of  all,  that  proper  care  be  given 
to  the  selection  of  employes.  The  fourteen-year-old 
applicant  for  the  office  boy's  position  should  be  a  future 
executive.  He  should  be  examined  with  that  end  in 
mind,  and  his  physical  and  mental  characteristics  should 
be  carefully  studied.  During  the  last  few  years  much 
progress  has  been  made  by  such  people  as  Dr.  Kath- 
erine  M.  H.  Blackford  and  Dr.  Winthrop  Talbot  in 
establishing  scientific  physical  tests.  Some  of  the  large 
concerns  have  installed  medical  departments  for  this 
sole  purpose.  The  education,  home  surroundings,  and 
future  ambition — all  of  which  may  be  determined  by 
discreet  questioning — are  also  important  barometers  in 
judging  the  capability  of  a  person  to  perform  the  work 
to  which  he  or  she  is  assigned  and  of  advancing  the 
employe  to  a  more  important  position. 

One  of  the  large  electrical  companies  places  so  much 
importance  upon  an  employe's  advancement  that  it  has 
laid  down  this  definite  rule.  Each  year  during  the 
first  five  years  an  employe  must  either  be  worth  an 
increase  in  salary  or  must  be  dismissed  upon  the  ground 
that  he  is  not  made  of  the  right  kind  of  material.  It 
is  said  that  this  rule  works  out  excellently  in  practice, 
though  there  is  some  doubt  as  to  whether  its  inflexi- 


OFFICE    METHODS  455 

bility,  especially  in  so  large  a  concern,  does  not  work 
considerable  harm. 

There  is  not  sufficient  space  to  dwell  upon  this  fea- 
ture at  length.  Suffice  it  to  say  that  the  selection  of  the 
right  kind  of  office  employe  is  essential  to  the  successful 
management  of  any  office.  Some  concerns,  notably 
Ladenburg,  Thalman  &  Company  of  New  York,  have 
definite  application  blanks,  methods  of  investigation, 
and  so  on,  for  this  purpose. 

Coupled  with  the  selection  of  employes  is  the  im- 
portance of  assigning  to  them  the  duties  which  they 
are  by  nature  best  fitted  to  perform.  This  is  almost 
obvious,  yet  how  many  clerks  are  at  the  billing  desk 
when  they  should  be  order  clerks  or  entry  clerks?  In 
cases  where  there  is  an  original  examination  such  as  has 
just  been  discussed,  it  is  only  a  matter  of  carrying 
the  process  one  step  farther  and  determining  what 
qualifications  are  necessary  to  perform  a  given  kind 
of  work.  In  the  mailing  department  of  one  of  the 
large  publishing  houses,  for  example,  it  has  been  estab- 
lished that  an  active,  nervous  girl  can  turn  out  more 
work  than  a  calm,  self-contained  girl,  even  though  the 
later  may  move  decisively. 

The  welfare  movement  in  factories  is  being  applied 
to  offices  as  well.  In  many  of  the  large  companies,  like 
the  Metropolitan  Life  Insurance  Company  and  The 
American  Telephone  and  Telegraph  Company,  light, 
airy  lunch  rooms  where  wholesome  food  is  tastily 
served  at  low  prices  are  provided.  The  National  City 
Bank  of  New  York,  Spencer  Trask  &  Company,  and 
other  large  companies  have  provided  club  rooms,  libra- 
ries and  recreation  rooms  where  office  employes  may 
gather  after  office  hours  and  listen  to  lectures  on  busi- 
ness subjects,  discuss  outings  and  so  on.  All  these 


456  BUSINESS    MANAGEMENT 

movements  should  be  encouraged  and  aided  by  office 
managers  and  by  the  heads  of  concerns.  They  stimu- 
late loyalty,  cooperation  and  an  interest  in  each  other 
which  in  the  long  run  expresses  itself  in  an  increased 
interest  in  their  work. 

242.  Establishing  standards. — It  was  stated  above 
that  office  work  does  not  lend  itself  well  to  scientific 
management.  Yet  it  is  possible  to  establish  standards 
and  by  means  of  the  reports  discussed  in  the  chapter 
on  "Office  Systems  and  Reports"  to  determine  the 
efficiency  of  employes.  Marshall  Field  &  Company  of 
Chicago,  the  Simmons  Hardware  Company  of  St. 
Louis,  and  other  concerns  have,  for  instance,  placed 
their  typing  departments  upon  an  efficient  basis  in  this 
manner.  By  means  of  a  register  which  records  the 
number  of  strokes  on  the  typewriter  keys  they  obtain 
a  fairly  accurate  record  of  each  girl's  output.  In  other 
cases  the  number  of  lines  (of  a  given  length)  or  the 
number  of  words  are  counted  by  the  chief  of  the  typing 
department.  The  following  is  a  sample  of  a  week's 
record  in  one  of  the  concerns  which  uses  the  line  method 
of  calculation.  The  high  records  were  made  by  opera- 
tors on  dictating  machines  turning  out  standard  para- 
graph letters  while  the  lower  records  were  made  by  be- 
ginners or  girls  on  difficult  dictation.  The  initials  in 
the  top  row  indicate  the  correspondents  who  dictated 
during  the  week;  the  names  of  the  typists  appear  in 
the  left-hand  column: 

TAT  LRS  BMO     FL      BL   EWC  MHE  HT  COPY  TOT. 

Miss  Smith...  270   670      585    750    1,065     60  1,240  4,640 

Miss  Jones....     85    ...    4,900    145     95      415  5,640 

Miss  Brown 310    4,870    590    ...       300  6,070 

Miss  Richards 250    ...     3,900       150   ...    1,545  5,845 

Miss  Hart 655      850    420   ...    2,040  3,965 

355    670   6,450    5,970    750    3,900  2,370  155  5,540  26,160 

These  records  form  the  basis  of  a  bonus  system.  Any 


OFFICE    METHODS  457 

such  bonus  system  must  necessarily  be  elastic  and  more 
or  less  arbitrary.  In  this  particular  case  the  committee 
which  awards  the  bonuses  takes  into  consideration  the 
number  of  lines,  the  nature  of  the  work  and  the  acci- 
dents and  other  delays  reported.  The  operators  cannot 
tell  in  advance  just  what  their  bonuses,  if  any,  will  be. 
Their  reliance  on  the  fairness  and  judgment  of  the 
committee  makes  the  system  effective,  however.  In 
addition  the  figures  posted  on  a  bulletin  board  arouse 
a  friendly  competitive  spirit. 

Many  large  concerns  have  discontinued  bonus  and 
piece-work  systems  in  the  office.  The  American  Law 
Book  Company  of  New  York  tried  a  piece-work  sys- 
tem but  gave  it  up.  So  did  the  Sears-Roebuck  Com- 
pany of  Chicago.  At  one  time  five  hundred  clerks  in 
the  entry  department  in  this  company  were  paid  on  a 
piece-work  basis,  but  the  plan  was  found  impracticable. 

243.  Military  type  of  organization. — There  are  three 
types  of  office  organization:  first,  the  military  type;  i.) 
second,  the  functional  type;  third,  a  combination  of  the 
military  and  functional  types  which  may  be  termed 
semi- functional.  In  the  military  type,  which  is  the  most 
common,  the  head  of  each  department  controls  all  ofe^j 
the  work  that  is  performed  in  the  department,  regard- 
less of  its  character.  The  sales  manager,  for  example, 
is  provided  not  only  with  assistants  for  writing  to  sales- 
men, for  handling  mail  order  work  and  for  other  purely 
sales  activities,  but  in  addition  has  his  own  stenogra- 
phers, typists,  statisticians,  file  clerks,  mail  clerks  and 
errand  boys.  The  sales  department,  under  these  condi- 
tions, becomes  practically  a  business  office  in  itself.  On 
the  one  hand,  it  is  credited  with  sales  and,  on  the  other 
hand,  it  is  charged  with  its  expenses.  This  is  an  easy 
method  of  determining  the  exact  ratio  of  sales  expense 


458  BUSINESS    MANAGEMENT 

to  income.  As  has  already  been  pointed  out  in  an 
earlier  part  of  this  book,  however,  the  military  form  of 
organization  is  obviously  inefficient.  The  sales  depart- 
ment is  forced  to  perform  functions  entirely  outside  its 
scope.  The  selling  type  of  mind  is  different,  as  a  rule, 
from  the  type  needed  for  the  efficient  regulation  of 
routine. 

The  same  basic  objections  apply  to  the  military  form 
of  organization  in  the  other  departments. 

244.  Functional  type. — The  separation  of  strictly 
office  work  from  the  functions  within  the  scope  of  the 
sales,  production,  financial  and  accounting  officials  is 
similar  to  the  change  which  takes  place  in  the  factory 
organization  when  the  functional  type  is  substituted  for 
the  military.  The  duties  of  the  gang  foreman  in  the 
latter  case  are  distributed  among  a  number  of  func- 
tional foremen,  each  with  his  own  special  duty  to  per- 
form. In  the  office,  the  department  heads  confine  their 
energy  to  selling,  manufacturing,  financing  and  ac- 
counting, as  the  case  may  be.  The  specialized  function 
of  managing  the  office  is  turned  over  to  a  person  trained 
for  this  duty.  Frequently  we  find  an  officer — usually 
the  accountant — performing  the  dual  task  of  running 
an  office  and  one  of  the  four  departments.  While  this 
arrangement  is  sometimes  expedient,  especially  when 
a  concern  is  not  large  enough  to  warrant  the  employ- 
ment of  an  office  manager,  it  does  not  conform  strictly 
to  the  accepted  idea  of  a  functional  organization. 

When  the  functional  idea  is  in  force  it  is  carried  out, 
so  far  as  possible,  throughout  the  entire  office  organi- 
zation. Except  in  cases  where  there  is  not  enough  work 
to  keep  a  person  busy,  one  specific  task  is  assigned  to 
each  employe.  Functional  organization  is  illustrated 
in  Figure  24. 


OFFICE    METHODS 


459 


460  BUSINESS    MANAGEMENT 

During  the  change  to  the  functional  scheme  of  organ- 
ization in  this  case  numerous  instances  were  discovered 
where  one  clerk  could  do  the  work  that  two  had  for- 
merly performed.  The  office,  in  this  organization,  is 
a  separate  department  directly  responsible  to  the  execu- 
tive committee.  It  is  not  a  sub-department  of  any  one 
department,  but  a  sub-department  of  them  all.  All 
the  clerical  work  is  under  the  supervision  of  the  office 
manager  and  he  has  his  subordinate  chief  clerks,  whose 
duties  are  still  further  specialized.  The  functional  idea 
is  carried  to  its  fullest  point  in  the  collection  depart- 
ment where  each  clerk  has  one  task  to  perform.  One 
checks  bills,  receipts  and  addresses,  another  types  form 
letters,  another  enters  remittances,  and  so  on. 

245.  Semi- functional  organization. — We  frequently 
find  an  office  organization  almost  on  a  functional  basis 
but  still  adhering  in  minor  respects  to  the  old  scheme 
of  management.  For  reasons  that  are  good,  the  various 
departments  retain  their  own  stenographers  and  one  or 
two  special  clerks.  The  work  may  be  of  a  confidential 
character  or  the  clerk  may  need  specialized  training 
that  can  be  obtained  only  by  closely  attending  the  head 
of  the  department  or  his  assistants. 

The  organization  of  the  office  in  the  White  Company, 
Cleveland,  Ohio,  manufacturers  of  motor  cars,  is  of 
this  character.  In  the  White  Company,  the  sales  de- 
partment is  in  two  divisions,  one  in  charge  of  the  second 
vice-president,  the  other  under  the  jurisdiction  of  the 
secretary.  The  auditor  is  also  office  manager  but  vari- 
ous sales  departments  and  sub-departments  have  re- 
tained some  clerical  help.  The  advertising  department 
is  a  typical  example.  Specially  trained  clerks  are 
usually  necessary  in  advertising  work  and  we  find  that 


OFFICE    METHODS  461 

special  stenographers  and  clerks  are  assigned  to  this 
department. 

246.  Committee  system. — The  committee  system  is 
employed  in  the  office  with  excellent  effect.  In  Figure 
24  it  will  be  seen  that  the  office  manager  is  a  member 
of  the  executive  committee.  The  value  of  this  arrange- 
ment is  evident  when  it  is  remembered  that  the  force  he 
controls  is  in  constant  attendance  upon  the  departments 
of  which  the  other  members  of  the  committee  have 
charge.  Through  the  committee  meetings  the  office 
manager  keeps  in  touch  with  the  plans  and  policies  of 
the  various  departments,  and  is  thus  enabled  to  direct 
his  force  with  an  intelligent  regard  for  the  work  which 
should  take  precedence  over  other  work.  Here,  too, 
he  learns  of  the  shortcomings  of  his  force,  receives  sug- 
gestions that  add  to  its  efficiency  and  imbibes  the  spirit 
of  the  entire  organization,  which  in  turn  he  communi- 
cates to  his  department  heads  through  an  office  com- 
mittee. The  office  committee  is  composed  of  the  office 
manager  and  his  chief  clerks.  The  frequency  of  the 
executive  committee  and  office  committee  meetings  de- 
pends upon  the  nature  of  the  business.  The  former 
usually  meets  more  often  than  does  the  latter.  There 
is  a  danger  in  carrying  the  committee  system  too  far, 
just  as  there  is  in  not  carrying  it  far  enough.  The 
routine  of  the  day  should  not  be  broken  any  more  than 
necessary;  it  is  often  advisable,  in  fact,  to  hold  meet- 
ings during  the  lunch  hour  or  on  Saturday  afternoons. 

247.  Suggestion  system. — The  suggestions  offered 
by  office  boys  and  other  minor  employes  frequently  sur- 
prise even  the  most  ardent  advocates  of  the  suggestion 
system.  The  usual  plan  is  to  offer  two  or  three  definite 
money  prizes  for  the  best  suggestions  turned  in  during 


462  BUSINESS    MANAGEMENT 

a  given  period,  say  one  month.  The  suggestions  are 
unsigned,  a  copy  being  kept  by  the  author.  They  are 
deposited  in  a  box  designed  for  that  purpose  or  are 
laid  on  the  desk  of  the  office  manager.  Either  the  exec- 
utive committee  or  the  office  committee  passes  on  the 
various  suggestions  submitted  and  awards  the  prizes, 
posting  the  winning  suggestions  on  a  bulletin  board. 
The  contributors  then  submit  their  copies,  receive  the 
prizes  and  their  names  are  written  on  the  posted  docu- 
ments. Suggestions  such  as  providing  a  motor  for  a 
hand-driven  device,  reducing  the  sizes  of  various  pieces 
of  stationery  to  avoid  folding,  pasting  carbons  to  let- 
ters instead  of  pinning  them  thus  saving  space  in  the 
files  and  cost  of  pins  or  clips,  and  ideas  of  this  sort  are 
the  more  common.  Very  often,  however,  advertising 
and  selling  ideas  and  suggestions  of  similar  importance 
come  from  the  most  unexpected  sources. 

248.  Arrangement  and  lighting  of  office. — While  this 
subject  might  properly  be  treated  under  the  head  of 
organization  it  is,  nevertheless,  an  important  element 
in  the  management  of  the  office  and  may  well  be  con- 
sidered at  this  point. 

The  arrangement  of  desks,  filing  cabinets  and  other 
equipment  depends  much  upon  the  type  of  organiza- 
tion. Under  the  functional  type  where  the  filing  is 
concentrated  in  one  department,  where  the  typists  are 
gathered  under  one  chief  and  where  the  other  functions 
are  similarly  segregated,  it  is  obvious  that  the  equipment 
is  grouped  according  to  the  departments.  The  problem 
then  becomes  one  of  allotting  the  proper  floor  space 
and  position  to  each  department.  The  general  prin- 
ciple of  progression  forward  should  be  adhered  to  so 
far  as  possible.  It  is  usual  to  follow  the  course  taken 
by  the  orders  received.  This  is  illustrated  by  the  floor 


OFFICE    METHODS 


463 


plan  of  the  office  of  a  large  clothing  house  in  New 
York  (Figure  25).  The  orders  are  first  laid  on  the 
president's  desk.  From  there  they  go  to  the  credit  de- 


CREDIT 

TREASURER      CASHIERS 

DEPART-        AUDITOR 

PRESIDENT 

MENT 

|                  |                          |    |  

ACCOUNTING 

PRIVATE   CORRIDOR 

•     TIO 

SI 

1 

MAIN    CORRIDOR 

1 

DEPARTMENT 

VICE 

FACTORY 

1 

PRESIDENT 

SUPERINTENDENT 

BILLING 

DEPARTMENT 

CORRIDOR 

o: 
O 

REST  ROOM 
AND  LIBRARY 

;  

1, 

Q 

1     SALES 

.MANAGER 

SECRETARY 

P 

o 

cc 

MAILING 

«£ 
o 

k 

DEPARTMENT 

o 

SALES 

DIRECTORS' 
ROOM 

i 

o 

z 
< 

2 

STENOGRAPHIC 
DEPARTMENT 

_     — 

f 

DEPARTMENT 

'URCHA3- 
ING     1 
AGENT  § 

FILING 

PURCHASING 

DEPARTMENT 

ORDER 

MANAGER          1 

DEPARTMENT 

DEPARTMENT 

1 

i 

MAIN    CORRIDOR 

ELEVATORS  AND  STAIRWAYS 

FIGURE  25. — FLOOR-PLAN  OF  OFFICE  IN  NEW  YORK  CLOTHING  ESTABLISHMENT. 

partment  and  when  the  sales  manager  receives  them 
he  knows  whether  or  not  they  are  approved  by  the 
credit  department.  After  his  approval  they  proceed  to 
the  order  department  where  the  production  orders  are 
made  and  the  proper  copies  sent  to  the  filing  depart- 
ment for  the  sales  and  other  files,  to  the  billing  de- 


464  BUSINESS    MANAGEMENT 

partment  and  to  the  factory  superintendent.  The 
latter  is  not  far  distant  from  the  purchasing  agent  with 
whom  he  is  in  frequent  communication.  The  treasurer 
is  located  close  to  the  credit  and  accounting  depart- 
ments. The  shipping  slips  come  up  from  the  shipping 
department  on  the  floor  below  to  the  billing  department 
which  is  across  the  hall  from  the  accounting  depart- 
ment. The  filing,  mailing  and  stenographic  depart- 
ments are  also  conveniently  located.  There  is  very 
little  doubling  back  in  this  office. 

Care  should  be  given  to  the  proper  lighting  of  the 
office.  Poor  light  is  responsible  for  much  of  the  in- 
efficiency in  office  work.  It  is  advisable  in  most  cases 
to  call  in  an  expert  on  lighting,  because  the  work  has 
been  reduced  to  a  science.  In  some  cases  it  is  found 
cheaper  to  install  an  indirect  lighting  system ;  in  others 
a  direct,  properly  diffused  light  is  better.  The  candle 
power,  the  kind  of  shades,  the  distance  of  one  light  from 
another  and  from  the  work — all  these  are  important 
factors  to  be  considered. 

249.  Conclusion. — In  this  chapter  the  essential  fea- 
tures of  managing  an  office  have  been  treated  only 
briefly.  Much  more  might  be  said  on  the  subject  but 
the  reader  will  undoubtedly  be  able  to  apply  the  prin- 
ciples laid  down.  It  has  been  seen  that  these  principles 
differ  very  little  from  the  principles  that  underlie  the 
whole  problem  of  management.  Proper  organization, 
intelligent  handling  of  the  forces  under  the  office  mana- 
ger's control  with  always  an  eye  toward  results,  the 
adoption  and  use  of  higher  standards  and  better 
methods  and  finally  a  regard  for  the  comfort  and  sur- 
roundings of  his  employes — these  are  the  main  prob- 
lems of  the  office  head. 


QUIZ  QUESTIONS 

(The  numbers  refer  to  the  numbered  sections  in  the 

text.} 

PART  I:    BUSINESS  ORGANIZATION 

CHAPTER  I 

1.  What  was  the  original  meaning  of  the  word  "Busi- 
ness?" 

2.  What  did  the  early  economic  man  lack  in  order  to 
make  his  labor  effective? 

3.  What  relation  has  surplus  wealth  in  various  com-  JT 
munities  to  commerce? 

4.  How  did  the  proportion  of  capital  compare  with   c, 
labor  in  the  period  of  the  town  economy? 

5.  How  did  specialization  affect  the  industrial  de- 
velopment of  the  town?     How  did  the  growing  demand 
for  goods  affect  the  organization  of  the  guilds? 

6.  Why  is  the  handicrafts  system  sometimes  char- 
acterized as  a  system  of  custom  production? 

7.  From  what  point  of  view  is  industry  regarded 
when  its  organization  is  referred  to  as  the  domestic  sys- 
tem? 

8.  Describe  the  conditions  under  which  the  middleman 
made  his  appearance.     Point  out  several  things  which 
show  how  industry  was  gradually  changing  its  organiza- 
tion in  the  latter  part  of  the  Eighteenth  Century. 

9.  What  was  the  chief  function  of  the  manufacturer 
during  the  latter  period  of  the  domestic  system?     Why 

11-30  465 


466  QUIZ  QUESTIONS 

was  it  that  business  men  were  seldom  ruined  completely 
during  a  financial  crisis?  What  economic  argument 
did  the  parliamentary  committee  offer  in  justification 
of  the  merchant's  position? 

CHAPTER  II 

10.  What  is  the  problem  of  each  nation  relating  to 
the  disposition  of  the  industrial  surplus?     What  prin- 
ciple  governed  the  colonial  policy  of  nations  in  the 
Eighteenth  Century? 

11.  What  was  the  first  great  gain  in  cheapening  pro- 
duction? 

12.  Name  the  consideration  which  may  counterbal- 
ance the  technical  efficiency  of  machinery.     What  were 
the  essential  elements  in  the  change  from  the  domestic 
to  the   factory  system?     What  effect  did  machinery 
have  upon  the  methods  of  labor? 

13.  Under  what  conditions  did  the  partnership  form 
of  organization  originate?     Name  the  advantages  of 
the  corporate  form  over  the  partnership  form  from  the 
point  of  view  of  business  organization. 

14.  When  did  large-scale  production  become  the  pre- 
vailing type  of  industry?     Name  the  largest  corpora- 
tions in  the  United  States. 

15.  In  what  four  directions  has  the  division  of  labor 
manifested  itself?     Illustrate  by  reference  to  some  mod- 
ern industry  the  great  savings  that  are  being  made  in 
the  cost  of  production. 

16.  What  characteristics  pertain  to  the  territorial  di- 
vision of  labor? 

17.  Why  are  specialization  and  cooperation  closely 
associated? 


QUIZ  QUESTIONS  467 

CHAPTER  III 

18.  Give  the  essential  attributes  of  a  market.     De- 
scribe the  simplest  form  of  market. 

19.  What  peculiar  feature  is  there  in  connection  with 
the  Antwerp  grain  market? 

20.  Market  prices  are  the  resultant  of  what  influ- 
ences? 

21.  What  is  the  function  of  the  speculator,  the  job- 
ber, the  broker? 

22.  How  does  the  handling  of  raw  materials  differ 
from  the  distribution  of  manufactured  products? 

23.  Why  does  speculation  associate  itself  with  the 
markets  for  raw  products  more  than  with  the  markets 
for  manufactured  goods? 

24.  What  are  the  chief  points  pertaining  to  the  cus- 
tom of  "set  off"  in  the  decision  of  the  Supreme  Court 
of  the  United  States,  May  8,  1905? 

25.  Into  what  two  parts  may  a  market  be  divided? 

26.  Why  is  grading  of  a  material  necessary  in  order 
to  establish  a  broad  market? 

27.  Why  is  the  warehouse  receipt  an  important  docu- 
ment in  the  grain  trade? 

28.  What  is  a  contract  grade  of  wheat?     Why  should 
an  inspector  of  goods  by  whose  decision  a  grade  is  es- 
tablished be  closely  watched? 


CHAPTER  IV 

29.  Name  the  various  interests  which  use  the  Chicago 
Board  of  Trade  as  a  market  place  in  buying  and  selling 
wheat. 

30.  What  is  the  business  purpose  of  the  corporation 


468  QUIZ  QUESTIONS 

known  as  the  Chicago  Board  of  Trade?     What  are  the 
two  principal  kinds  of  transactions  on  the  exchange? 

31.  What  are  the  chief  sources  of  orders  which  are 
received  by  the  brokers  in  the  future  markets? 

32.  Define  hedging.     Point  out  the  difference  be- 
tween a  hedging  and  a  speculative  operation. 

33.  What  economic  argument  is  there  in  support  of 
the  future  trading  in  the  wheat  markets?     Define  the 
hedging  operation  as  conducted  by  an  elevator  com- 
pany. 

34.  Describe  the  course  of  an  order. 

35.  Into  what  two  classes  may  pit  traders  be  divided? 

36.  Describe  the  method  of  payment  employed  in  the 
Board  of  Trade. 

37.  What  is  meant  by  the  expression  "trading  on  a 
margin"?     Show  how  the  method  of  "ringing  out"  ob- 
viates the  necessity  for  a  clearing  house. 

38.  Why  is  a  clearing  house  system  necessary  in  con- 
nection with  the  Board  of  Trade? 

39.  Name  the  chief  produce  exchanges  of  the  United 
States  and  Europe.     What  is  the  duty  of  the  committee 
on  arbitration?     Name   four  rules  which  protect  the 
traders. 

40.  What  influence  have  the  telegraph  and  the  At- 
lantic cable  had  upon  the  organization  of  the  market? 

CHAPTER  V 

41.  Why  was  the  Manchester  cotton  goods  exchange 
organized? 

42.  What  reasons  are  impelling  the  manufacturer  to 
strengthen  his  control  over  the  market?     What  form  of 
association  is  represented  by  the  Central  Thread  Com- 
pany? 


QUIZ  QUESTIONS  469 

43.  Describe  the  agency  method  of  selling.     Outline 
the  method  employed  by  the  American  Tobacco  Com- 
pany in  disposing  of  its  product. 

44.  How  may  the  method  of  transportation  influence 
the  system  of  distribution?     What  special  cause  induced 
the  large  iron  and  steel  manufacturers  to  eliminate  the 
middleman? 

45.  Name  some  factors  affecting  the  selling  methods 
in  the  textile  industries.     State  two  reasons   for  the 
strong  position  which  the  commission  men  hold  in  these 
trades. 

46.  What  drawbacks  has  the  mail-order  method  in  the 
United  States  and  England? 

47.  Why  does  not  the  manufacturer  of  sugar  estab- 
lish his  own  retail  stores  ?     What  motives  led  the  Ameri- 
can Tobacco  Company  to  establish  retail  stores?     Show 
how  a  company  has  rapidly  extended  this  system  of  sell- 
ing. 

48.  Outline  the  chief  reasons  for  the  declining  im- 
portance of  the  middleman. 

CHAPTER  VI 

49.  What  part  has  private  enterprise  taken  in  the 
building  up  of  the  foreign  export  business? 

50.  How  does  the  American  manufacturer  look  upon 
industrial  expositions   as  a  means  of  introducing  his 
goods  in  other  countries? 

51.  Outline  the  methods  by  which  a  manufacturer 
should  approach  the  subject  of  exporting. 

52.  Why  are  clearness  and  simplicity  in  foreign  cor- 
respondence essential?     What  cautions   should  be  ob- 
served in  compiling  catalogues? 

53.  What  advantage  has  a  graduated  scale  of  prices 


470  QUIZ  QUESTIONS 

over  a  quoted  price?     What  caution  should  be  observed 
in  quoting  prices  C.  I.  F.  and  F.  O.  B,? 

54.  What  is  the  economic  function  of  the  commission 
man? 

55.  What   cautions   should   be   observed   in   dealing 
with  commission  houses? 

56.  What  are  the  chief  duties  of  an  export  commission 
man? 

57.  What  encroachments  are  being  made  upon  the 
functions  of  the  commission  house? 

58.  Name  four  methods  used  by  manufacturers  to  put 
goods  on  the  market. 

59.  What  are  "jobbing  houses"? 

60.  What  are  the  advantages  to  the  foreign  customer 
in  dealing  through  a  commission  house?     What  are  the 
advantages  to  the  manufacturer?     What  is  the  ordinary 
method  employed  in  arranging  the  financial  settlement 
when  goods  are  exported? 

61.  What  precaution  should  be  observed  in  dealing 
with  commission  houses? 

62.  How  do  manufacturers  located  far  from  the  ports 
keep  in  touch  with  the  export  conditions? 


CHAPTER  VII 

63.  What  is  the  chief  function  of  the  consular  service? 

64.  What  influence  is  the  industrial  activity  of  Ger- 
many exerting  on  our  consular  service? 

65.  What  system  of  consular  appointments  was  in- 
augurated in  1906? 

66.  What  is  the  range  of  the  salaries  of  consular  offi- 
cers? 

67.  What  is  the  character  of  the  consular  reports? 


QUIZ  QUESTIONS  471 

Of  what  importance  are  such  reports  to  the  American 
foreign  trade? 

68.  How  have  the  consular  reports  helped  the  United 
States  to  introduce  new  goods  into  China?     Why  should 
Americans  study  the  styles  and  prejudices  of  foreign 
countries? 

69.  What  is  the  custom  among  foreigners  in  regard 
to  credits? 

70.  Why  is  it  important  that  strict  attention  be  paid 
to  the  packing  of  goods  for  the  export  trade? 

71.  How  does  the  government  discriminate  in  favor 
of  its  own  citizens  in  the  matter  of  trade  information? 

72.  How  do  the  consuls  aid  in  the  protection  of  the 
customs  revenue  ?     In  what  direction  should  the  consular 
service  be  extended? 


CHAPTER  VIII 

73.  In  what  two  directions  has  the  manufacturer  at- 
tempted to  reduce  his  costs? 

74.  Why  is  capital  said  to  be  fixed  when  it  is  invested 
in  a  manufacturing  plant? 

75.  What  important  factors  must  be  taken  into  con- 
sideration in  predetermining  business  enterprise? 

76.  Why  should  a  factory  be  placed  as  near  as  possi- 
ble to  the  source  of  the  raw  material? 

77.  Why  should  it  be  near  the  source  of  power? 

78.  Discuss  the  labor  market. 

79.  Discuss  the  factory's  output. 

80.  Discuss  transportation  facilities  and  the  relation 
to  factory  location. 

81.  Why  are  the  physical  surroundings  of  impor- 
tance? 


472  QUIZ  QUESTIONS 

82.  In  the  reorganization  of  an  existing  plant,  what 
important  considerations  may  arise? 

83.  What  advantages  has  a  country  site  over  one  in 
the  city?     Describe  the  storied  and  the  scattered  types 
of  manufacturing  plants. 

84.  What  important  principle  in  connection  with  fu- 
ture expansion  should  be  kept  in  mind  in  designing  a 
modern  plant? 

85.  In  providing  for  the  transmission  of  electrical 
power  within  the  factory  how  is  the  machinery  often 
grouped? 

86.  Why  should  standard  equipment  be  installed  as 
far  as  possible?     What  kind  of  tools  prove  to  be  the 
most  economical  in  the  long  run? 

87.  What  idea  should  be  kept  prominently  in  view 
when  providing  for  transportation  within  the  plant? 

88.  Discuss  the  conveyance  of  information. 

89.  Make  a  list  of  the  various  preliminaries  in  pre- 
paring to  manufacture  a  certain  product. 

CHAPTER  IX 

90.  On  what  basis  should  men  be  selected  for  posi- 
tions of  authority? 

91.  Make  outlines  showing  the  various  divisions  into 
which  the  following  functions  of  a  manufacturing  bus- 
iness may  be  divided:  controlling  the  supply  of  stock, 
purchasing,  testing,  employing,  selling,  warehousing, 
transporting,  maintenance,  improvement,  construction, 
executive,  administration.     What  data  should  be  gath- 
ered by  the  recording  department  in  connection  with 
the  employment  of  labor?     What  department  fixes  the 
price  at  which  goods  can  be  sold  to  make  a  profit?     Why 
is  it  important  that  the  maintenance  and  manufacturing 


QUIZ  QUESTIONS  473 

departments  be  consulted  before  any  extensive  improve- 
ments are  made  in  building  or  equipments? 

92.  Give  a  list  of  typical  duties  pertaining  to  the  fol- 
lowing   officers:    president,    vice-president,    secretary, 
treasurer,  general-manager. 

93.  What  advantages  are  claimed  for  the  functional 
method   of   organization   as   opposed   to   the   military 
method? 

94.  Describe  the  organization  of  the  planning  de- 
partment. 

95.  What  are  the  chief  foremen  connected  with  this 
department  and  what  are  their  duties? 

96.  What  are  the  duties  of  the  shop  bosses? 

CHAPTER  X 

97.  Make  a  sample  form  which  may  be  used  by  a 
salesman  in  sending  an  order  to  the  factory. 

98.  Why  is  it  good  business  policy  to  keep  the  draft- 
ing department  in  close  touch  with  the  shop?     Why 
should  all  drawings  be  OK'd  by  the  shop  foreman  be- 
fore they  are  placed  in  the  shop? 

99.  In  order  to  determine  the  efficiency  of  the  tool 
room,  to  what  important  tests  should  it  be  subjected? 

100.  What  advantages  are  there  in  the  separation  of 
the  management  from  the  factory  in  locating  it  in  a 
main  office  at  some  business  center  or  large  city? 

101.  Does  the  control  of  a  concern  by  the  owners  or 
by  salaried  managers  produce  the  best  result? 

102.  What  is  the  committee  system  of  management? 

103.  What  is  the  purpose  of  the  committees?     Of 
what  should  the  membership  consist?     Who  should  act 
as  chairman  of  the  most  important  committees? 

104.  Why  should  the  meetings  of  the  job  bosses  and 


474  QUIZ  QUESTIONS 

the  foremen  be  sharp  and  to  the  point?     What  class  of 
men  controls  the  labor  situation  in  a  factory  ? 

105.  What  are  the  fundamental  problems  which  in 
one  form  or  another  should  be  considered  by  the  various 
committees  ? 


CHAPTER  XI 

106.  State  the  principle  upon  which  an  office  system 
should  be  laid  out. 

107.  Name  the  various  departments  that  must  be  pro- 
vided for  under  the  heading  of  administrative  offices. 
What  two  separate  kinds  of  work  does  the  accounting 
department  embrace?     What   other   series   of   depart- 
ments closely  connected  with  the  factory  organization 
should  be  considered  in  planning  the  administrative  of- 
fices?    How  may  the  committee  system  be  applied  in 
office  management? 

108.  Why  is  the  question  of  internal  communication 
of  great  importance  in  planning  an  office  system? 

109.  What  economies  are  there  in  having  standard 
forms? 

110.  What   are   special   reports?     Regular   reports? 
What  general  rules  should  be  followed  in  the  compila- 
tion of  all  reports  ? 

111.  What  factors  should  decide  the  selection  of  a 
person  who  is  to  make  a  report? 

112.  In  general  what  two  things  should  always  ap- 
pear when  possible  in  a  report? 

113.  What  data  should  the  executive  have  in  arriving 
at  a  standard  of  comparison  in  the  process  of  production 
and  in  the  commercial  department?     Why  is  the  execu- 
tive report  considered  the  most  important? 


v 

QUIZ  QUESTIONS  475 

114.  What  is  the  chief  purpose  of  the  report  from 
the  selling  department? 

115.  What  items  will  form  the  basis  of  the  factory 
report?     Why  is  it  desirable  to  take  averages  covering 
a  period  of  six  months  or  more  in  comparing  weekly  or 
monthly  reports  obtained  from  the  factory? 

116.  Construct  a  form  which  will  embody  the  data  in 
the  factory  report.      (The  form  given  for  the  weekly 
progress  report  will  offer  some  suggestions.) 

117.  Where  are  the  cost  reports  treated  of? 

118.  What  two  things  determine  the  period  covered 
by  a  report? 

119.  Why  is  it  important  that  immediate  and  definite 
action  should  be  taken  on  all  reports? 

PART  II— BUSINESS  MANAGEMENT 

CHAPTER  I 

1.  What  are  the  cardinal  elements  of  management? 

2.  How  does  the  real  efficiency  engineer  differ  from 
the  fake  systematizer? 

-  3.  With  what  three  forces  does  management  deal? 

4.  Name  the  functions  of  the  manager.     Why  is  it 
unwise  to  tie  him  down  to  detail? 

5.  What'is  the  field  of  the  efficiency  engineer?    Of  the 
mechanical?    Why  should  a  manager  take  an  interest 
in  the  use  his  employees  make  of  their  leisure  time  ? 

>j6.  State  the  basic  principle  in  management. 
7.  What  should  be  the  ultimate  aim  of  management? 

«~8.  From  what  kind  of  income  should  dividends  be 
paid  ?  State  the  methods  by  which  immediate  dividends 
are  sometimes  paid,  to  the  detriment  of  future  profits. 


476  QUIZ    QUESTIONS 

9.  State  the  difference  between  the  manager  and  the 
purely  technical  man. 

j^LO.  What  has  been  the  effect  of  specialization  on 
management  ? 

11.  Why  is  not  specialization  in  the  field  of  manage- 
ment more  widely  adopted? 

3*12.  Outline  the  general  scheme  of  departmental  spe- 
cialization in  the  Pierce- Arrow  Motor  Car  Works. 
What  makes  it  necessary? 

13.  State  the  general  trend  of  specialization. 

14.  To  what  extent  may  the  various  phases  of  busi- 
ness activity  be  classed  as  sciences? 

15.  Outline  scientific  methods  of  investigation  as  they 
apply  to  business  management. 

46.  State  a  first  practical  rule  in  the  application  of 
scientific  methods.  Why  must  care  be  taken  not  to  re- 
gard the  laws  deduced  by  investigation  as  final? 

17.  Why  is  the  antipathy  of  some  business  men  to 
"theory"  unfounded?  Distinguish  between  "common 
sense"  and  scientific  investigation.  How  is  this  illus- 
trated? 

jzrlS.  What  is  the  effect  of  a  new  standard  on  the  or- 
ganization? What  changes  did  the  "shovel  experiment" 
necessitate? 

19.  Is  the  teaching  element  a  new  one  in  business? 
How  has  it  been  developed?  Describe  the  instruction 
of  shovelers  at  the  Bethlehem  Steel  Works. 

CHAPTER    II 

>•  20.  Distinguish  between  principles  and  methods. 
What  is  the  final  test  of  a  method  of  management? 

-  21.  Describe  the  division  of  economic  units  by  func- 
tion. 


QUIZ    QUESTIONS  477 

•/22.  Name  some  important  industrial  units. 

23.  Distinguish   between   economics,    industry,    and 
business  and  show  their  relations. 

24.  Name  the  managerial  or  business  units.     State 
their  functions.     Show  their  relations.    State  the  usual 
division  of  responsibilities  among  the  executive  officers 
of  a  corporation. 

25.  Who   are   members   of  the   manager's   cabinet? 
Why  is  this  cabinet  a  necessity?     What  new  member 
could  profitably  be  added? 

^-26.  Of  what  does  the  staff  organization  consist?  The 
line  organization?  State  the  relation  of  their  members 
to  the  general  manager. 

27.  Distinguish  between  the  manager  of  the  financial 
department  and  the  financial  specialist  of  a  large  con- 
cern. Describe  the  functions  of  the  former. 

-7*28.  Describe  the  duties  of  the  sales  manager. 

29.  What  are  the  functions  of  the  Accounting  De- 
partment? 

30.  Over  what  does  the  jurisdiction  of  the  manager 
of  production  extend? 

^31.  What  are  the  advantages   of  an  organization 
chart?    Name  the  four  basic  departments  of  an  organi- 
zation.   State  what  their  relations  should  be. 
^  32.  Show  why  these  relations  should  exist  by  detail- 
ing the  duties  of  the  departments  mentioned. 


CHAPTER   III 

33.  Enumerate  the  various  types   of  management. 
Show  how  each  has  derived  its  name. 

34.  What  are  the  chief  characteristics  and  disadvan- 
tages of  the  unsystematized  type? 


478  QUIZ    QUESTIONS 

35.  To  what  condition  has  the  prevalence  of  this  type 
been  due? 

36.  What  are  the  chief  characteristics  and  advan- 
tages of  the  systematized  type? 

37.  What  are  the  functions  of  the  cost  records?    In 
what  respect  does  the  systematized  type  fall  short  ac- 
cording to  the  exponents  of  scientific  management? 

38.  What  are  the  distinguishing  characteristics  and 
advantages  of  the  efficiency  type  of  management,  as 
compared  with  the  unsystematized    type?      As    com- 
pared with  the  systematized  type? 

39.  State  the  theory  underlying  the  standardization 
of  costs. 

40.  Describe  the  course  through  the  shop  of  a  job 
ticket  made  up  in  the  planning  department  and,  by 
doing  so,   show  how  costs   are  determined  as   a  by- 
product.      What  difference  is  there  between  system 
and  efficiency? 

41.  State   the   advantages   of   comparative   records. 
Compare  the  "deadly  parallel"  method  with  that  based 
on  predetermined  standards. 

.X42.  Show  the  superiority  of  stock  taking  under  sci- 
entific methods. 

/*  43.  Differentiate  as  clearly  as  possible  between  the 
staff  and  military  type  of  management  and  show  how 
the  terms  originated. 

44.  Is  the  meaning  that  has  been  attached  to  "mili- 
tary" justified? 

45.  What  are  the  functions  of  the  general  staff  di- 
vision of  military  organization?     How  is  this  division 
sub-divided  ? 

46.  What  officers  compose  the  military  staff  of  a 
commander  of  a  United  States  Field  Army,  and  what 
are  their  duties? 


; 


QUIZ    QUESTIONS  479 

47-  State  the  functions  of  the  administrative  staff 
of  an  American  Field  Army. 

48.  Describe  succession  by  seniority  as  it  applies  to 
the  army. 

49.  How  may  the  business  man  profit  by  understand- 
ing the  organization  of  the  army? 

50.  How  is  the  theory  of  staff  and  line  organization 
applied    in    the    Sherwin-Williams    Paint    Company? 
What  advantages  are  secured? 

51.  Do  divisional  and  departmental  types  of  man- 
agement have  to  do  only  with  the  railroad?    Why  are 
examples  taken  from  railroad  management? 

52.  What  significance  does  the  word  "department" 
have  for  the  railroad  man?     For  the  industrial  man- 
ager?    State  the  chief  characteristics  and  advantages 
of  the  departmental  type  of  railroad  management. 

53.  What  is  the  opinion  of  Mr.  Arthur  Hale  on  these 
two    systems    of   management?     State  the  facts  with 
which  he  supports  his  opinion. 

54.  Jot  down  side  by  side  the  advantages  and  disad- 
vantages of  the  departmental  and  divisional  types  of 
management.     Give  examples  of  industries  in  which 
one  or  the  other  might  be  the  better  type  to  apply. 

55.  Can  the  advantages  of  both  types  be  merged 
in  one  management? 

CHAPTER   IV 

J  56.  Make  clear  that  these  various  comparisons  of 
types  of  management  are  from  several  different  view- 
points. 

57.  State  the  chief  characteristics  and  disadvantages 
of  the  undisciplined  type  of  management.  Name  some 
of  the  usual  losses  occasioned  by  it. 


the 

; 


480  QUIZ    QUESTIONS 

58.  Why  is  labor  efficiency  low  under  management 
of  this  type? 

59.  State  the  chief  characteristics  and  advantages  of 
the  disciplined  type  of  management. 

60.  State  some  evidence  of  discipline.    What  is  said 
of  standard  for  output  under  this  type.    The  selection 
of  workers  is  touched  upon.    What  points  are  made? 

61.  Show  that  the  management  of  a  concern  may  fall 
within  two  or  more  of  these  classes.     Distinguish  the 
traditional,  transitory,  and  functional  types  and  show 
their  relations  to  types  previously  discussed. 

62.  Give  two  other  names  for  functional  manage- 
ment. 

63.  What  is  meant  by  planning?    State  the  principle 
underlying  it. 

4.  What,  according  to  Mr.  Henry  P.  Kendall,  are 
the  advantages  of  the  planning  department? 

65.  State  the  objections  to  a  piece  work  system  of 
wage  payment.     Name  the  five  conditions  upon  which 
the  efficiency  of  the  worker  depends  under  functional 
management. 

66.  What  advantages  may  be  gained  by  scientific 
selection  of  workers,  and  how  does  it  aid  discipline? 

67.  By  whom  are  workmen  trained  under  functional 
management?    How  does  their  being  trained  help  dis- 
cipline ? 

9    68.  What  is  demanded  of  functional  management  re- 
garding tools  and  machines? 

"69.  How  is  discipline  gained  by  providing  a  proper 
incentive  for  the  workingman?  What  is  meant  by 
proper  incentive? 

70.  What  two  broad  and  sweeping  changes  in  man- 
agement are  recommended  .by  Mr.  Taylor  in  installing 
the  functional  type  ?  What  does  he  say  functional  man- 


QUIZ    QUESTIONS  481 

agement  consists  of?  State  in  brief  the  duties  of  the 
"gang  boss";  the  "speed  boss";  the  inspector;  the  "re- 
pair boss";  the  order-of-work  or  route  clerk;  the  in- 
struction card  man;  the  time-and-cost  clerk;  the  shop 
disciplinarian. 

--  71.  What  is  the  keynote  of  all  management?    Name 
'the  four  principles  that    should    underlie  all  manage- 
ment. 

72.  What  is  said  of  the  indispensable  man? 

73.  How  should  we  handle  the  exceptional  man? 

CHAPTER   V 

74.  What  factor  in  human  nature  militates  against 
efficient  management,  and  how  does  it  do  this? 

-*•    75.  What  are  the  requirements  of  a  good  organiza- 
tion chart?    What  will  it  show? 

76.  State  how  it  will  help  the  employee?      The  man- 
ager?   Discuss  the  organization  chart  shown  on  page 
280. 

77.  State  the  advantages  of  the  organization  record 
and  show  how  it  supplements  the  organization  chart. 

78.  What  are  some  of  the  objections  to  a  written  rec- 
ord?   What  is  the  answer  to  these  objections? 

79.  Why  is  the  planning  department  a  necessity? 
S  80.  What  are  its  duties? 

^•81.  What  saving  resulted  from  the  installation  of  a 
planning    department    at    the    Tabor    Manufacturing 
Company?    How  were  these  savings  effected? 
•   82.  Why  do  some  managers  object  to  the  introduc- 
tion of  a  planning  department?    What  experiences  are 
cited  to  show  that  this  stand  is  not  well  taken? 
77  83.  Outline  the  evolution  of  the  planning  depart- 
ment. 

II— 31 


482  QUIZ    QUESTIONS 


.  What  is  said  of  the  permanent  records  actually 
accumulated  by  the  planning  department? 

85.  Name  the  two  main  divisions  of  the  planning  de- 
partment work.     Mention  the  man  taking  charge  of 
these  and  other  sub-divisions  of  the  work  of  the  plan- 
ning department. 

86.  What,  in  general,  determines  the  proportion  of 
planners  to  doers? 

87.  Write  down  the  names  of  the  men  composing  the 
planning  department  under  consideration. 

88.  Detail  the  chief  functions  of  the  production  clerk. 

89.  What  information  does  he  need?    How  does  he 
get  it?    Name  some  of  his  important  classifications  of 
orders.    Discuss  their  relative  importance. 

90.  Describe  fully  the  "checking-up"  methods  of  the 
production  clerk. 

91.  What  qualifications  are  desirable  in  the  produc- 
tion clerk?    Define  the  scope  of  his  authority. 

92.  What  is  the  function  of  the  route  clerk?    What 
must  he  know? 

93.  Detail  the  procedure  of  the  route  clerk  in  starting 
a  piece  of  work  through  the  shop. 

94.  Why  should  the  route  clerk  be  endowed  with  tact? 
How  can  he  avoid  "nagging"? 

95.  Under  what  condition   is    a    special  material  or 
foundry  clerk  necessary?    What  are  his  duties? 

96.  Enumerate   the  duties   of  the  balance-of-stores 
clerk. 

97.  What  is  the  function  of  the  time-study  clerk? 

98.  State  the  duties  of  the  instruction-card  clerk. 

99.  Enumerate  the  details  cared  for  by  the  route-file 
clerk. 

100.  Enumerate  the  details  cared  for  by  the  order-of- 
work  clerk. 


QUIZ    QUESTIONS  483 

101.  Why  may  he  be  called  the  eye  of  the  superinten- 
dent? 

102.  What  details  are  cared  for  by  the  recording 
clerk? 

103.  What  are  the  duties  of  the  cost  clerk  and  his  as- 
sistants?   What  records  come  to  him  and  what  does  he 
do  with  them? 

104.  What  are  the  duties  of  the  time-keeper? 

105.  Show  that  planning  introduces  no  new  duties. 

*  106.  Name  the  seven  general  functions  of  the  plan- 
ning department.  What  are  the  three  things  expected 
of  the  workers? 

CHAPTER   VI 

^?107.  Show  the  importance  of  correct  standards  in 
management. 

^•108.  State  the  commonest  objection  to  the  adoption 
of  standards  and  show  how  it  can  be  refuted. 

109.  What  cautions    must  be    kept    in   mind   when 
adopting  standards? 

110.  Show  how  standards  have  been  applied  to  the 
Purchasing  and  Contracting  Department.     What  ad- 
vantages have  resulted? 

111.  What  has  standardization  accomplished  in  the 
New  York  City  Government  ? 

112.  Look  about  your  office  and  make  a  note  of  the 
opportunities  for  standardizing  supplies. 

113.  Explain  the  multiple  system  of  standard  sizes. 
"114.  What    are    the    advantages    of    standardizing 

equipment  ? 

115.  How  is  standardization  applied  to  delivery  sys- 
tems? 

116.  What  advantages  will  be  gained  by  having  in- 


484  QUIZ    QUESTIONS 

terchangeable  machine  parts?  Support  your  answer 
with  examples. 

117.  Explain  the  use  of  "limiting  dimensions." 

118.  State  the  requirements  of  a  good  symbol  system. 

119.  Discuss  the  construction  of  a  system  of  symbols. 

120.  Construct  a  simple  working  system  of  symbols 
for  some  line  with  which  you  are  familiar. 

121.  When  are  numbers  best  as  symbols? 

122.  Discuss  the  advantages  of  the  several  symbol 
systems  described. 

-X123.  State  the  advantages  of  standardizing  routine. 

124.  Describe  the  steps  in  developing  standard  rou- 
tine. 

125.  What  are  the  advantages  of  a  printed  record? 
What  would  be  the  best  form  for  your  business  ? 

CHAPTER   VII 

126.  Why  do  men  have  a  standard  weight,  a  stand- 
ard yardstick,  a  standard  time,  etc.  ? 

127.  Why  does  a  manufacturer  wish  to  establish  his 
production  on  the  market  as  a  standard  of  its  kind? 
Why  does  he  strive  to  establish  standards  for  as  many 
activities  and  processes  as  possible  in  the  factory? 

128.  Provided  that  the  inspection  department  is  effi- 
cient, why  is  the  determination  of  a  standard  time  of 
prime  importance? 

129.  What  is  betterment  work? 

130.  What  must  be  taken  into  consideration  in  deter- 
mining wage  systems? 

— 131.  What  are  the  most  prominent  systems  of  pay  in 
the  United  States?  State  the  condition  under  which 
each  has  proved  to  be  especially  successful. 

132.  If  you  had  a  high-grade  shop  where  the  work 


QUIZ    QUESTIONS  485 

was  standardized  and  the  men  well  trained  and  the  rate 
of  production  high,  what  system  of  payment  would  be 
likely  to  get  the  most  out  of  the  costly  machinery  and 
tools? 

133.  Under  the  efficiency  system,  how  is  the  amount 
of  bonus  determined?     What  advantages  has  it  over 
the  Taylor  system? 

134.  What  is  the  importance  of  determining  a  stan- 
dard time  before  deciding  on  a  wage  system? 


CHAPTER   VIII 

^    135.  What  is  said  of  the  high  cost  of  man  power  and 
its  results? 

136.  What  steps  are  being  taken  to-day  to  eliminate 
waste  of  human  power? 

137.  State  the  theory  underlying  the  "rest  and  relax- 
ation" idea. 

jr  138.  State  the  elements  to  be  considered  in  determin- 
ing a  fair  day's  pay. 

139.  Go  over  the  illustrations  given,  changing  the 
figures  so  that  they  will  apply  to  your  business  or  to 
some  business  with  which  you  are  familiar. 

140.  State  the  special  factors  influencing  wages. 

141.  Why   should  the  chief  incentive  be  increased 
wages  ? 

142.  Indicate  the  importance  of  short-period  records 
as  a  pace. 

143.  Why  are  pleasurable  surroundings  important? 

144.  What  is  the  importance  of  warmth? 

145.  How  may   self-interest   be   stimulated   by  the 
keeping  of  individual  records  ? 

146.  Explain  the  advantage  of  the  individual  record 
in  making  promotions. 


486  QUIZ    QUESTIONS 

147.  Explain  how  by  their  use  the  unfit  can  gradu- 
ally be  eliminated. 

148.  State  the  advantages  gained  by  the  use  of  indi- 
vidual  records   in   the   Metropolitan    Street    Railway 
Company. 

149.  Name  some  incentives  that  have  worked  well  in 
special  cases. 

150.  Show  the  importance  of  permanency  of  employ- 
ment.   Why  have  pension  systems  been  established? 

151.  Show  the  importance  of  hope  of  advancement, 
as  a  stimulus. 

152.  State  the  policies  of  three  important  concerns  in 
this  regard. 

153.  Write  down  the  *  qualities  you  would  wish  your 
employes  to  have. 

154.  What  do  you  think  you  could  accomplish  as  an 
employer  by  making  a  man  analyze  himself? 

155.  Describe  the  system  of  examination  of  the  Chi- 
cago &  Northwestern  Railway. 

156.  What  is  the  importance  of  physical  and  moral 
fitness  ? 

157.  State  the  attitude  of  the  business  world  toward 
education.     How  is  this  evidenced? 

158.  Outline  the  instruction  system  of  the  National 
Cash  Register  Company.    Of  the  National  Commercial 
Gas  Association. 


CHAPTER   IX 

159.  What  were  the  first  steps  taken  preliminary  to 
industrial  betterment?  Compare  the  conditions  in  the 
factories  in  England  during  the  first  half  of  the  Nine- 
teenth Century  with  present  conditions. 


QUIZ    QUESTIONS  487 

160.  What  was  the  origin  of  the  term  "welfare  insti- 
tutions"?   Give  arguments  to  show  that  welfare  institu- 
tions are  of  real  profit  to  the  employer  of  labor.    Name 
the  duties  of  "welfare  managers." 

161.  What    general    devices    should    be    employed 
against  accidents  and  fire? 

162.  What  is  the  ideal  location  for  a  factory? 

163.  What  devices  are  employed  for  good  ventila- 
tion, plenty  of  light  and  sanitation? 

164.  Give  some  specific  illustrations  of  good  sanita- 
tion and  cleanliness. 

165.  What  is  the  importance  of  providing  adequate 
quarters  for  the  employe's  lunch  hour?    Give  some  illus- 
trations of  this  in  the  United  States  and  France. 

166.  Name  some  of  the  considerations  which  come 
under  the  leading  of  recreation. 

167.  State  the  general  effect  of  welfare  institutions. 

168.  What  are  the  objects  of  a  suggestion  system? 

169.  What  results  may  be  expected  from  the  sugges- 
tion system?     Support  your  answer  by  citing  results 
that  have  been  secured. 


CHAPTER   X 

7  170.  Of  what  use  are  statistics  ? 

~  '171.  What  is  the  chief  advantage  of  the  graph? 

172.  Show  its  use  in  comparing  several  sets  of  facts. 

173.  Illustrate  its  use  in  comparing  periods  of  time. 

174.  Of  what  use  are  reports?     Need  they  be  de- 
layed? 

-175.  Outline  the  inspection  methods  of  the  Westing- 
house  Electric  and  Manufacturing  Company. 
176.  Why  should  work  in  process  be  inspected? 


488  QUIZ    QUESTIONS 

177.  What  is  the  advantage  of  supplying  the  in- 
spector with  a  list  of  questions  ? 

178.  State  the  qualifications  of  a  good  inspector. 

179.  How  is  information  from  the  outside  used  to 
increase  the  efficiency  of  the  inspection  department  ? 

180.  Distinguish  between  several  kinds  and  methods 
of  inspection. 

181.  What  is  research  and  how  does  it  differ  from  in- 
spection? 

182.  Describe  the  research  laboratory  of  the  J.  I. 
Case  Threshing  Machine  Company. 

183.  What  are  its  objects? 

184.  Outline  a  time  study  for  an  operation  in  your 
business. 

185.  Reduce  this  study  to  a  formula. 

186.  Name  some  of  the  valuable  sources  of  printed 
information  on  business. 

,^187.  What  are  the  advantages  of  a  study  of  competi- 
tive methods  and  how  may  it  be  carried  on? 

188.  How  might  consulting  experts  be  used  to  advan- 
tage in  your  business  ? 


CHAPTER   XI 

189.  Give  a  notable  example  of  the  advantage  of 
"routing." 

190.  Describe  routing  as  it  applies  to  the  railroad. 
.X191.  Name  the  three  essentials  in  routing. 

192.  Describe  the  two  methods  of  securing  a  good 
plant  lay-out. 

193.  Why  is  a  straight  line  between  terminals  im- 
portant ? 

194.  Name  the  various  types  of  manufacture. 


QUIZ    QUESTIONS  489 

S 195.  What  are  the  characteristics  of  the  analytic  type? 

196.  What  are  the  characteristics  of  the  continuous 
type? 

197.  What  are  the  characteristics  of  the  assembling 
type? 

198.  What  must  be  taken  into  consideration  in  pro- 
viding passageways  and  space  for  raw  material? 
3^199.  Name   all   the   considerations   that   will   affect 

'transportation  within  the  plant. 

200.  To  what  extent  should  future  growth  be  allowed 
for? 

201.  Describe  several  ways  in  which  future  growth 
has  been  provided  for  without  sacrificing  present  effi- 
ciency. 

202.  What  is  meant  by  taking  advantage  of  gravity? 

203.  How  does  the  time  element  affect  routing? 

204.  Name  the  two  types  of  routing  and  describe 
them. 

205.  When  is  special  dispatching  necessary? 
^^206.  How  does  the  planning  department  control  the 

routing  ? 

207.  Describe  the  route-board  and  its  use. 

208.  How  is  the  worker  notified  of  the  jobs  that  have 
been  planned  ahead  for  him  ? 

209.  What    questions   are   answered   by   the   route- 
board  ? 

j>  210.  What  is  meant  by  the  status  of  work  in  prog- 
ress?   Outline  methods  of  keeping  track  of  it. 

211.  Outline  the  system  of  the  New  York  Clearing 
House. 

212.  Describe  its  time  schedule. 

213.  Why  does  organization  save  time? 

214.  What  is  the  object  of  having  substitute  power 
equipment  ? 


490  QUIZ    QUESTIONS 

215.  What  is  the  equipment  "tickler"? 

216.  Cite  other  methods  of  avoiding  shut-downs. 

217.  Why    is    a    stock-keeping    system    necessary? 
What  are  the  duties  of  a  stock  or  tool  department? 

218.  State  the  three  rules  of  store-keeping. 

219.  Describe  the   procedure  in  receiving  supplies. 
From  what  three  sources  are  supplies  received? 

220.  What  three  distinctions  should  be  made  in  issu- 
ing supplies  ? 

221.  Describe  the  requisition  system  of  issuing  ma- 
terials. 

222.  Describe  the  "bill-of-materials"  method. 

223.  How  may  these  two  systems  be  combined  to  ad- 
vantage? 

224.  Outline  the  J.  L.  Mott  Company's  tool-room 
system. 

225.  Describe  the  single  and  double  check  systems. 

226.  Why  is  it  necessary  to  have  the  stock-room  under 
lock  and  key  and  accessible  to  but  one  person? 

227.  How  are  goods  protected  from  depreciation  in 
the  stock-room? 

228.  Outline  two  methods  of  classification  by  kind  in 
the  store-room. 

229.  What  should  the  stock  ledger  show? 

230.  Describe  two  methods  by  which  the  annual  in- 
ventory-taking is  avoided. 

231.  What  is  meant  by  providing  a  surplus  of  the  less 
expensive? 

232.  What  is  said  of  small  savings  in  manufacturing 
and  other  forms  of  business  ? 

233.  Enumerate  some  of  the  opportunities  for  saving 
in  office  work. 

234.  Show  the  importance  of  avoiding  unnecessary 
shifting. 


QUIZ    QUESTIONS  491 

235.  What  is  meant  by  "fill-in"  work?    Give  some  ex- 
amples of  savings  that  may  be  effected  by  it. 

236.  Pick  out  from  the  work  going  on  about  you 
some  examples  of  waste  motions  and  waste  material. 

237.  Define  and  explain  the  importance  of  the  by- 
product.   Enumerate  some  businesses  in  which  supplies 
can  be  used  a  second  time. 


CHAPTER  XII 

238.  From  what  point  of  view  must  we  consider  the 
office  for  the  purpose  of  this  discussion? 

239.  What  is  the  relation  of  the  office  to  all  other 
phases  of  the  business?    What  should  be  the  first  step 
taken  in  securing  efficiency  in  the  office? 

240.  What  qualifications  are  necessary  therefore  in 
the  head  of  the  office? 

241.  Why  is  the  securing  of  maximum  efficiency  in 
the  office  a  difficult  proposition?    What  is  said  of  the 
selection  and  handling  of  employes?    How  has  welfare 
work  been  applied  to  the  office? 

242.  Devise  methods  of  establishing  standards  in  your 
office. 

243.  Name  the  three  types  of  office  organization. 

244.  What  are  the  characteristics  of  the  functional 
type?    Describe  the  functional  organization  of  the  of- 
fice charted  in  Figure  24. 

245.  Why  are  combinations  of  the  functional  with 
other  types  sometimes  advantageous? 

246.  Describe  the  committee  system  as  it  applies  to 
the  office.    What  are  its  advantages? 

247.  How  does  the  suggestion  system  work  out  in  the 
office? 


492  QUIZ    QUESTIONS 

248.  What  should  be  the  guiding  principles  in  the  ar- 
rangement of  an  office?    What  effect  has  poor  light  on 
efficiency? 

249.  Summarize  the  principles  underlying  office  or- 
ganization and  compare  them  with  those  underlying 
organization  in  the  plant. 


INDEX 


Accidents   and   fire, 

Safety  devices  against,  372. 

Accounting   department,  176. 
Analysis   of,  231. 
As  a  unit,  230,  231. 

Administrative    departments,    151. 

Administrative  information,  sources 
of,  386-404. 

Administrative  offices,  175-178. 

Administrative  staff,  246. 

Advancement,    hope   of,   a    stimulus 

to  employes,  356. 
In  office  work,  454. 

Advertising,  functions  of  factory, 
148. 

Agency  methods   of  selling,   70. 

Aids  to  management,  published  doc- 
uments, 401-404. 

America  compared  with  England 
and  Germany  in  industries,  226- 
227. 

American  companies  liberal  in  shar- 
ing ideas,  403-404. 

American  concerns  seeking  foreign 
markets,  88. 

"  American  Exporter,"  B.  Olney 
Hough,  editor,  quoted,  91. 

American  foods  in  foreign  markets, 
117-118. 

American  Institute  for  Social  Ser- 
vice, 372. 

American  salesmen   abroad,  107. 

Analytic  manufacture,  410. 

Applicants   for  positions,  358-360. 

Arrangement    of    office,    462-463. 

Assembling  manufacture,  410. 

Assembling   work,  331. 

Automatic   sprinklers,   373. 


Balance-of-stores  clerk,  298. 
Basic  principle  in  management,  201. 
Basis    for   selecting   types,   235. 
Beginnings  of  industrial  betterment, 

370. 

Bill  of  materials,  433. 
Biscuits,  direct  marketing  of,  72. 
Blumenthal,     Gustav    A.,     on    self- 

analyzation,  360-362. 
Bonus  plan, 

In  offices,  457. 

In  paying   factory  employes,  335. 

Points  to  commend  the,  339. 

Use  of,  105.      t 
Bookkeeping,    perpetual   system    of, 

443. 
Boot   and   shoe  industry,  controlled 

by  middlemen,  77. 
Boss,  the,  an  instructor,  216. 

Gang,   270. 

Repair,  271. 

Speed,  270. 

Bosses  and  foremen,   172-174. 
Branch  houses,    108-110. 
Buyers, 

Foreign,  91. 

Two  classes  of  stock,  55. 
Business, 

Not  an  exact  science,  209. 

Relation    of,    to    controlling    au- 
thority, 169-170. 

Two  phases,  38. 
Business   forces, 

Nature  of,  196. 

Business    Management,    administra- 
tive  information,    386-404. 

Basic  principle,  201. 

Cardinal  elements,  195. 


493 


494 


INDEX 


Business  Management   (Continued}. 

Complicated      by      specialization, 
205. 

Deals   with   three  sources    of   en- 
ergy, 197. 

Disciplined      and      undisciplined, 
257-262. 

Functional,   described   by  Taylor, 
268-272. 

Functional  type,  263,  264. 

Importance   of   charts,  232. 

Industrial  betterment,  370-380. 

Management   units,   219-234. 

Modern  aids,  277-306. 

Office  methods,  449-464. 

Petty  economies,  441-442. 

Principles  of,   195-464. 

Profits  the  purpose  of,  202. 

Savings    in    time    and    materials, 
405-448. 

Specialization  in,  205,  206. 

Staff  and  military  types,  243. 

Standardization     and     equipment, 
307. 

Standardization    and   wages,   327- 
339. 

Traditional  type,  263. 

Transitory  type,  263. 

Types   of,  235-276. 

Undisciplined      and      disciplined, 
257. 

What    the    science    involves,    213- 

215. 

"  Business   Organization,"  by  Spar- 
ling, quoted,  60. 
Business     standards,     cautions     in 

adopting,  310. 
By-products,  448. 


Capital, 

Fixed  in  an  industry,  126. 
Flow  of,  4. 
Invested,   31. 
Investments,   16. 


Carpenter,    C.    U.,    on    assembling 
work,  332. 

On  standardization,  315. 
Census   reports  of  capital  invested, 

31. 

Chalmers,  Hugh,  on  qualities  of  em- 
ployes, 359. 

Character  of  authority,  169. 
Characteristics    of    the    department 

type,  249,  250. 

Chart  of  orders  and  shipments,  389. 
Chart,  organization,  of  a  publishing 

house,  459. 

Charts,  importance  of  in  organiza- 
tion, 232. 

Charts   of  organization,  177. 
Charts,  organization,   usefulness   of, 

278-280. 

Checks  against  injustice,  351-352. 
Checking  up  progress  of  work,  292. 
Chicago, 

A  market  for  grain,  45. 

A  typical  market,  52. 

Grain  inspection  in,  49. 
Chicago   Board  of  Trade,  52. 
Cigar  stores,  83. 
City  and  country,  for  factory  sites, 

132. 

Classification   of  goods,   436-437. 
Clearing-house,  62. 
Clerk, 

Balance-of-stores,  298. 

Cost,  303. 

Instruction-card,  300. 

Order-of-work,  300. 

Production,  290-291. 

Recording,  302. 

Route,  271. 

Route,  294-296. 

Route-file,  300. 

Special  material,  296-297. 

Time,  272. 

Time-study,  300. 
Combination   systems,  433. 
Commerce, 

Definition  of,  5. 

Commercial  results  of  test,  397. 
Commission   agents,    foreign,    107. 


INDEX 


495 


Commission  houses,  78. 

Dealings  with,  103-104. 

Export,  100-103. 
Committee  system,  170. 
Committee  system  of  office  manage- 
ment, 461. 

Committees,  duties  of,  171-172,  174. 
Communication  in  factories,  141. 
Comparison  of  systems,  241. 
Competition,  9. 

Competitive  methods,  study  of,  403. 
Conservatism,  foreign,  119. 
Consuls, 

Purpose  of,  111. 

Salaries  paid  to,  114. 
Consular  reports,  115. 
Consular  service,  111-123. 
Consulting  experts,  404. 
Continuous  manufacture,  410. 
Control  of  business  energy,  199. 
Control   of  employes   by   education, 

364-366. 

Control  of  labor,  340-369. 
Cooperation, 

And  centralization,  24. 

And  specialization,  124. 

Benefits  of,  3. 

Between    employer    and    employe", 

381. 

Corporate  management,  225. 
Corporations, 

Origin   of,  29. 
Correspondence, 

Foreign,  93. 
Cost  clerk,  303. 
Cost  records,  238. 
Cost  reports,    192. 
Cost  sheets,  303. 
Costs  as  a  by-product,  240. 

Standardizing,  240. 
Credits,  foreign,  120. 
Customs  revenues,  123. 


Day-work  plan  of  pay,  334. 
Defoe,  Daniel, 

Describes  conditions   in   England, 
14. 


Delivery     systems,     standardization 
of,  314. 

Department  grouping,  207. 

Department  specialization,  206-209. 

Department  type,  the,  249,  250. 

Departmental  functions,  144-160. 

Departmental  management  of   rail- 
roads, 255. 

Departments,  accessibility  of,  412. 
Four  basic,  449. 

Determination     of     handling     time, 
330. 

Determining     facts    by    inspection, 
390. 

Difference    between     manager     and 
engineer,  204. 

Differential  piece-rate  system,  336. 

Discipline,  aids  to,  266-268. 

Disciplined    type    of    management, 
260-262. 

"Discoveries"     in    "Good     House- 
keeping," 384. 

Distinctions  between  economics,  in- 
dustry, and  business,  221. 

Divisional  and  departmental  types, 
248. 

Divisional  management  of  railroads, 
255. 

Domestic  system,  11-12. 

Drafting  department,  164-166. 

Drawings,   standard,   312. 

Duties,  specialization  of,  208. 


E 


Economy  in  standard  materials,  312. 

Economic  units,  220. 

Economics, 

Point  of  view  social,  222. 
Education,  control  of  employe's  by, 

364-366. 
Educational  problems  for  factories, 

133. 

Effect  of  a  new  standard,  215. 
Effects  of  welfare  institutions,  380. 
Efficiency, 

Elements  in,  333. 


496 


INDEX 


Efficiency   (Continued) . 

Of  office   employes,  456. 

System  of  pay,  337. 

Tests  in,  214-215. 

Type  of  management,  239. 

Types  of,  235-236. 
Effort,  incentive  to,  349. 
Elements  in  efficiency,  333. 
Elements  of  management, 

Applied  to  office,  451. 

Cardinal,  195. 

Elimination  of  the  unfit,  352-353. 
Employes,    courses    of    study     for, 
364-366. 

Office,  efficiency  of,  456. 

Recreation  of,  379. 

Selecting  and  handling  office,  454. 

Studying  traits   of,  354. 

Suggestions  by,  381-385. 

Welfare  treatment   of,  370-380. 
Employing  labor,  146. 
Employment,    permanency   of,    354- 

357. 

Employment  records,  353. 
England,  sanitation  in,  377. 
Equipment,  standard,  313. 
Equipment  tickler,  427. 
Essentials  in  routing,  407. 
Estimates,  all  results  tabulated,  443. 
Evidences  of  discipline,  260. 
Evils  of  substitution,  104. 
Examinations    for  .consular   service, 

112-115. 
Exchanges,  Stock, 

List  of,  64. 

Officers  in,  64. 

Rules,    regulations    and    manage- 
ment of,  63-67. 
Exclusive  agency,  104. 
Executive  officers,  151. 
Executive  report,  184-186. 
Expense,  extra,  in  foreign  trade,  98. 
Expensive  versus  cheap   labor,   440- 

441. 

Experience  the  final  test,  394. 
Experiments,  cost  of,  210. 
Experts,  consulting,  404. 
Export  commission  houses,  100-103. 


Factory, 

Buildings,  134. 

Change   from  a  mill  to  a  school, 
212. 

Construction,  151. 

Functions  performed  at,  169. 

Organization,  125. 

Output,  market  for,  128. 

Plans,  142-143. 

Reports,   188-190. 

Simplest  type  of,  413. 

System,  23. 

The    modern,    and    its    specializa- 
tion, 33. 

Upkeep  of,  150. 
Factories, 

Light  in,  374. 

Must  be  fireproof,  373. 

Old  and  new,  134. 

Pleasant  surroundings   for,  374. 

Sanitation  of,  376. 

Ventilation  of,  375. 
Facts,     determined     by     inspection, 

390. 
Family,  the, 

New  motive  for  cooperation,  3. 
Fill-in  work,  445. 

Financial    department,    analysis    of, 
230. 

As  a  unit,  229. 
Financing  of  trusts,  31. 
Fire  drills,  373-374. 
Fire  escapes,  373. 
Floor-plan  of  an  office,  463. 
Flour  mills,  capacity  of,  43. 
Force  in  management,  195. 
Foreign  commission   agents,   107. 
Foreign  customs  regulations,  116. 
Foreign  credits,  120. 
Foreign  markets, 

Sources    of    information    concern- 
ing, 91-93. 

Foreign  needs  and  prejudices,  118. 
Foreign    sales   arrangements,   105. 
Foreign  trade   opportunities,   122. 


INDEX 


497 


Foreign  trade, 

Special  conditions  of,  93-100. 
Forms  for  stock-taking,  438,  et  seq. 
France,  lunches  for  workers  in,  378. 
French  names,  99. 
Function   of   the  office,   449. 
Functions  of  the  general  staff,  245. 
Functional   management,    268-272. 
Functional  method  of  organization, 

156. 
Functional    organization    of    office, 

458. 

G 

Gambling,    compared  with   specula- 
tion, 57. 
General  Manager, 

Cabinet  of,  226. 

Importance  of,  224. 
German  names,  98. 
Germany, 

Lunches  for  workers  in,  378. 

Organization  in,  70. 

Sanitation  in,  377. 
Gilbreth,    L.    M.,    quoted    on    plan- 
ning, 305-306. 

Goal  of  every  producer,  the,  227. 
Goods, 

Classification  of,  436-437. 

Protected  in   stock-room,  436. 
Government  documents,  402. 
Grain, 

Central  markets  for,  43. 

Elevators,  46,  47. 

Inspection  of,  49. 

Market  for,  45. 

Graphs  and  statistics,  386-387. 
Graphic    charts,   387. 
Gravity,  taking  advantage  of,  415. 
Growth,  room  allowed  for,  412. 
Guilds,  9. 
Gunn,  James  N.,  quoted,  181. 

H 

Hale,   Arthur,  on  railroad  systems, 

251-254. 

Halsey  system,  335. 
11—32 


Handicrafts  system,  10,  11. 
Harvester  consolidation,  69. 
Hathaway,  H.  K.,  on  completion  of 

orders,  293. 
On  planning,  284-286. 
Hauling,  two-way,  445. 
High-speed  tools,  329. 
High  wages  versus  high  cost,  344. 
Hine,  Charles,  quoted   on  the   Unit 

system,  384. 

Hospitals,  emergency,  374. 
Human  element,  the,  333. 
Human  engineering,  200. 
Human  power,  waste  of,  341. 
Hunting  for  things,  443. 


Idle  time,  avoidance  of,  445. 
Imperfect  work,  447. 
Incentive,  an  aid  to  discipline,  268. 
Index,  elimination   of   the,  443. 
Indispensable,    no   one   man   to   be, 

274-275. 

Individual     workman     decides     effi- 
ciency   of    whole    organization, 
339. 
Industrial     betterment,     beginnings 

of,  370. 

Industrial  betterment,  or  welfare  in- 
stitutions, 370-380. 

Institutions,  371-372. 
Industrial    development   of   nations, 

226-227. 

Industrial  units,  221. 
Industry, 

Increased  specialization  of,  7. 
Industries, 

Causes  for  localization  of,  35. 

Development  of,  22. 

Unsystematized,  237. 
Information, 

From  the  outside,  394. 

Sources  of,  386-404. 
Inspection, 

Necessity  of,  390-392. 

Of  commodities,  48. 

Of  work  in  process,  392. 


498 


INDEX 


Inspection   (Continued), 

Research  and,  395. 

State  bureaus  of,  48. 

Various  kinds  of,  394-395. 
Inspector,  duties  of,  271. 
Inspectors,   qualifications   of,  393. 
Instruction-card  clerk,  300. 
Instruction-card  man,  271. 
Instructions,  written,  282. 
Interchangeable  parts,  315. 
Interdepartmental     relations,     161- 

174. 
Inventions,  constant  search  for,  395- 

396. 

Inventory-taking,  438. 
Investigation,  scientific  methods  of, 

209. 

Iron  and  steel,  direct  selling  of,  76. 
Italian  names,  100. 


Jobber,  the, 

Aided   sometimes    by   direct   sell- 
ing, 76. 

Jobbing  houses,  106. 

Joint  Ownership,  16. 

Judgment  the  result  of  comDarison, 
307. 

K 

Kartell,  the,  of  Germany,  70. 
Kendall,  Henry  P., 

On    scientific     management,    264- 
265. 

On  types  of  efficiency,  261. 


Labor, 

And  capital,   in   handicrafts    sys- 
tem, 10. 

Control  of,  340-369. 
Division  of,  32. 
Efficiency,  265-266. 
Efficiency,  low,  259. 
Efficiency,   standards   of,  308-309. 
Market,  128. 
Territorial  division  of,  35. 


Labor-saving  devices,  179-180. 
Laborer  of  to-day,   compared  with 

early  worker,  25-27. 
Letters, 

Imitation    typewritten,    95. 
Libraries  maintained  by  companies, 

402. 

Light,  in  factories,  374. 
Lighting  of  office,  464. 
Limited   companies,  29. 
Limiting  dimensions,  316. 
Liverpool  market,  50. 
Local  management,  167-169. 
Location  of  plant,  126. 
Loss, 

Caused  by  shifting  jobs,  444. 

In  unsystematized   work,  257-258. 
Lunch  rooms,  377. 
Lunches,  for  workers,  378. 

M 

Machine    inspection    tag,    specimen, 

393. 

Machine  tools,  study  of,  329. 
Machinery,  economic   advantage   of, 

27. 

Machines,   not   to  be   idle,  445. 
Mail-order  houses,  81. 
Mail-order  method,  80. 
Mail-orders, 

Opposed  by  retail  dealers,  81. 
Main  lines  of  activities,  200. 
Main  office, 

Functions  performed  at,  169. 
Manager,  the, 

Duties  of,  197. 

Manager  versus  engineer,  204. 
Managers  of  departments,  229. 
Management, 

Elements  of,  451. 

Local,  167-169. 

Units,  232. 

Units,  duties  of,  233-234. 
Managerial  units,  223. 
Manpower,  high  cost  of,  340. 
Manufacture,  various  types  of,  409. 
Manufacturer  and  Middleman,  68. 
Manufactures,  market  for,  44. 


INDEX 


499 


Manufacturer's  retail  stores,  82. 
Manufacturing    business,    functions 

of  a,  144-152. 

Manufacturing  industries,  organiza- 
tion in,  124. 
Margins,  61. 
Market, 

Attempts  to  develop  special,  68. 

A  typical,  52. 

Chicago  a  grain,  45. 

Extension  of  the,  38. 

Forces,  complexity  of,  66. 

For  factory  output,  128. 

For  manufactures,  44. 

For  raw  materials,  42. 

Foreign,  88. 

Foreign,     modern      methods       of 
reaching,  89. 

Inspecting  and  grading  commod- 
ities, 48. 

Prices,  how  influenced,  41. 

Primary  function,  39. 

Sensitiveness  of,  66-67. 

Simplest  form,  39. 
Materials,  bill  of,  433. 

Sizing  of,  438. 

Standard,  312. 

Meat  packers'  associations,  71. 
Membership   in  exchanges,   64. 
Merchants,  rise  of,  7. 
Methods  of  packing,  120. 
Middleman, 

And  manufacturer,  68. 

Declining  importance   of  the,  84- 
87. 

Efforts  to  eliminate,  75  et  seq. 

Function   of  the,  41. 
Middlemen,  13  et  seq. 
Military    method     of    organization, 

155. 

Military  organization  of  office,  457. 
Military  types  of  management,  243. 
Modern  aids  in  management,  277- 

306. 

Modern  plants,  134. 
Morris,   Ray,   quoted   on   "Railroad 

Administration,"   249. 
Multiple  story  factories,  413-414. 


N 


National  Civic  Federation,  372. 
New    York    Clearing    House,    time 

schedule  of,  425-426. 
New  York  Stock  Exchange,  53,  54. 


Office, 

Appliances,  178. 

Employes,    adaptation    to    work, 
455. 

Employes,  different   from   general 
workers,  454. 

Floor  plan  of,  463. 

Function  of  the,  449. 

Harmony  with   all   other  depart- 
ments, 453. 

Head,   as   distinguished   from   the 
manager,  452. 

Management,     committee     system 
of,  461. 

Manager,  the,  45. 

Material,   standard,   312. 

Methods,  449-464. 

Organization,    175. 

Organization,  semi-functional,  4GO. 

Organization,  three  types  of,  457- 
461. 

Purpose  of  the,  451. 

Routine,  450. 

Systems  and  reports,   175-194. 

Work,  how  routed,  425. 

Work,   savings  in,  442. 

Work,  standards  in,  456. 
Offices, 

Arrangement  and  lighting  of,  462. 

Suggestion  system  in,  461-462. 

Welfare  work  in,  455. 
Officers,  duties  of,  152-155. 
Oil,  problem  of  distributing,  75. 
Operating  materials,  145. 
Operating   unit,    233. 
Order,  course  of  a  stock,  59. 
Order  for  goods,  course  of  an,  161- 

164. 
Order-of-work  clerk,  300. 


500 


INDEX 


Orders  and  shipments,  chart  of,  389. 
Orders,  methods  of  handling,   148. 
Organization, 

Advantages  and  limitations,  36. 

A  logical   arrangement   of  parts, 
1. 

Appearance  of  middlemen,   13  et 
seq. 

Capital   investments,    16. 

Chart  of,  224. 

Chart  of  a  publishing  house,  459. 

Charts,  usefulness  of,  278. 

Comparative  importance  of  capi- 
tal and  labor,   10. 

Consular  service,  111-123. 

Cooperation     and     centralization, 
24. 

Departmental  functions,  144-160, 

Developed  by  war,  247. 

Development  of,  1-37. 

Division  of  labor,  32. 

Domestic  system,  11. 

Early  economic   man,  in,   2. 

Effect  upon   the  laborer's  status, 
25. 

Export  business,  88. 

Extension     of     national     govern- 
ment, 13. 

Extension  of  the  market,  38. 

Factory  system,  23. 

Functional  method,  156. 

How  it  saves  time,  426. 

Importance  of  charts,  232. 

Influence  of  new  economic  activ- 
ities, 4. 

Interdepartmental   relations,    161- 
174. 

Manufacturing  industries,  124. 

Market,  38. 

Market  prices,  41. 

Marketing    of    manufactured 
goods,  68-87. 

Military  method,  155. 

Must  be  impersonal,  274. 

Of  an  administrative  staff,  246. 

Of  a  military  staff,  245. 

Office  system,   175-194. 

Office,  three  types  of,  457-461. 


Organization  (Continued). 

Perfection    revealed    in    markets, 

66. 

Records,  281. 
Staff  and  line,  227-230. 
Territorial  division  of  labor,  35. 
The  Exchange,  52-67. 
The  producer  as  a  business  man, 

27. 

The  town  a  new  economic  unit,  6. 
Town  economy,  8. 
Trusts,  or  unions  of  corporations, 

30. 
Output,   three   factors   conditioning, 

328. 
Overhead  expense,  286. 


Partnership, 

Advantages  of,  29. 

Early  form,  28. 
Passageways,  410. 
Pay, 

A  fair  day's,  344. 

Systems  of,  334-339. 
Payment,  method  of,  in  stock  trans- 
actions, 60. 

Pensions  of  employes,  355-357. 
Period  covered  by  a  report,  192. 
Physical    surroundings    of    factory, 

130. 
Piece-work, 

In  offices,  457. 

Plan  of  pay,  334. 

Versus  time-work,  332. 
Plan  of  routing,  417-419. 
Plan  of  steel  plant,  413. 
Plans,  value  of,  as  records,  288. 
Planners,  number  of,  289. 
Planning, 

And  overhead  expense,  286. 

In  advance,  289. 

Is  specialized  management,  284. 

Room,  290. 
Planning  board,  420. 
Planning  department, 

Duties  of,  156-158. 


INDEX 


501 


Planning  Department   (Continued), 

Functions   of,   273. 

Evolution  of,  288. 
Plant, 

Arrangement  of,  134-136. 

Layout,  408. 

Maintenance,  150. 
Policies,  not  details,  277. 
Pope,  death  of  the,  how  news  was 

routed,  405. 

Porter,  H.  F.  J.,  quoted  on  manage- 
ment, 232. 
Power, 

Companies,  rates  of,  446. 

Equipment,   substitute,   426-427. 

Human   compared  with   mechani- 
cal, 340-343. 

Source  of,  127. 

Transmission  of,  136. 
Prices,  quoted  to  foreign  trade,  96. 
Principles  of  management,  219. 
Printed  record,  value  of,  325. 
Producer, 

As  a  business  man,  27. 

The  goal  of  every,  327. 
Product,  the    standardization   of   a, 

327. 
Production   clerk,   qualifications    of, 

294. 

Production  data,  330. 
Production  department, 

Analysis  of,  231. 

As  a  unit,  231. 
Profits, 

Immediate  versus  future,  203. 

Sacrificing   permanent,  203-204. 

The  purpose  of  management,  202. 
Progress     of    work,    how    watched, 

292-293. 

Progress  report,  190-192. 
Promotion  policies,  357-358. 

Q 

Qualifications  of  inspectors,  393. 

Qualities  essential  to  good  em- 
ploye's, 359-360. 

Questions  as  guides  to  inspection, 
392. 


R 

Railroad, 

Examinations   for   employes,   362- 
363. 

Location,  406. 

Management,  249. 

Organization,  chart,  of,  252. 
Raw  material, 

Controlling  supply  of,  145. 
Raw  materials, 

Market  for,  42. 

Source  of,  127. 

Reapers,  contest  of,  abroad,  89. 
Receipts  for  goods,  431. 
Receiving  and  shipping,  409. 
Record  department,  234. 
Recording  clerk,  302. 
Records, 

Always    available,    450. 

Organization,   281. 

Short-period,  348. 

Use  of  employment,  353. 
Recreation  of  employes,  379. 
Remainder    of   stock,    responsibility 

for,  435. 

Reorganization  of  plants,  131. 
Reports, 

Advantage  of,  388. 

Arrangement  of,   182. 

By  whom  made,  181. 

Contents  of,  181. 

Disposition  of,  192-194. 

Four  general  kinds,   184. 

Function  of,  180. 

Systems  of  collecting  data,  183. 
Requisitions,  how  to  use,  432. 
Research  and  inspection,  395. 
Research  laboratories,  396. 
Rest, 

And  relaxation,  343. 

Hours  and  lunch  rooms,  377. 

Rooms,  374. 

Route-board,  the,   described,   419. 
Route  clerk,   294-296. 
Route-file  clerk,  300. 
Routine, 

Of  office,  450. 


502 


INDEX 


Routine  (Continued), 

Standardizing,  322-324. 
Routing, 

Essentials  in,  407. 

Of  news,  405-406. 

Of  office  work,  425. 

Plan  of,  417-419. 

Time  element  in,  415. 

Two  types  of,  416. 
Rules,  books  of,  325. 


Safety  devices,  372-374. 
Sales  delivery  dates,  291. 
Sales  department, 
Analysis  of,  230. 
An  office  division,  176. 
As  a  unit,  230. 

Salesmanship,  courses  in,  367-369. 
Sanitation  of  factories,  376. 
Savings  effected  by  suggestion  sys- 
tem, 383. 
Savings  in  time  and  materials,  405- 

448. 

Science  of  management, 
Broad  meaning  of,  208. 
What  it  involves,  213-215. 
Scientific   methods  of   investigation, 

209. 
Scientific   methods   of    stock-taking, 

242. 

Scientific  selection,  266-267. 
Seasonal  business,  444. 
Self-analyzation,  360-362. 
Selling, 

Agency  methods,  70. 
Conditions,  recent  change  in,  230. 
Department,  report  from,  186-188. 
Direct  to  customers,  74. 
Functions  of  factory,  147. 
Through    commission    houses,    78- 

87. 

Semi-functional  organization  of  of- 
fice, 460. 
Shaping    men    to    the    organization, 

275. 

Sharing    ideas,    American   liberality 
in,  403-404. 


Shifting  jobs,  444. 

Shipping  direct  to  consumer,  75. 

Shoe   stores  run  by  manufacturers, 

83. 

Shop  bosses,  158-160. 
Shop  disciplinarian,  272. 
Short  cuts  in  business,  442. 
Shortest     time,     determination     of, 

331-332. 

Shut-downs,  how  avoided,  427. 
Single    and    double    check    system, 

435. 

Sizing  of  materials,  438. 
Small  savings,  441-442. 
Smoke  evil,  the,  374. 
Source  of  power,  127. 
Spanish  names,  99. 
Spare  time,  utilization  of,  444. 
Special  dispatching,  417. 
Special  material  clerk,  296-297. 
Special   training   of  employes,   366- 

369. 

Specialists  in  an   organization,  228. 
Specialization, 

And  cooperation,  124. 

Complicates  management,  205. 

Department,  206-209. 

In  factory  products,  34. 

In  management,  205-206. 
Speculation, 

And  gambling,  56. 

Defense  of,  58. 

Thrives  on  uncertainty,  66. 
Staff  and  line  in  business,  248. 
Staff  and  line  organization,  227-230. 
Staff  officers,  245. 
Standard  drawings,  312. 
Standard  equipment, 

Efficiency  promoted  by,  313. 

Need  of,  137. 
Standard     materials,     economy    in, 

312. 

Standard  office  forms,  179. 
Standard  office  material,  312. 
Standard  routine,  322-324. 
Standard  specifications,  311. 
Standards, 

In  office  work,  456. 


INDEX 


503 


Standards  (Continued). 

Of  efficiency,  215. 

Of  labor  efficiency,  308. 
Standardization       and       equipment, 

307-326. 
Standardization     and     wages,     327- 

339. 
Standardization  of  machinery  parts, 

315-316. 

Standardizing  costs,  240. 
Statistics,  use  of,  386. 
Status  of  work  in  progress,  420-425. 
Steel  plant,  plan  of,  413. 
Stimulating  self-interest,  351. 
Stock  exchanges, 

List  of,  64. 

Officers,  64. 

Rules,  63-67. 
Stock-keeping    system    a    necessity, 

428. 

Stock  ledger,  438. 
Stock-room  protects  goods,  436. 
Stock-taking,       scientific      methods, 

242. 

Storage  facilities,  411. 
Store-keeping,  three  rules  of,  429. 
Storerooms,  137. 

Strike,  disadvantages  of   a,  197. 
Study, 

Continual,    essential    to    progress, 

ill. 

Of  competitive  methods,  403. 

Of  men  essential,  217-218. 
Substitute    power    equipment,    426- 

427. 

Substitution,  104. 
Success,  conditions  of,  126. 
Succession  by  seniority,  247. 
Suggestion  system, 

In  management,  381-385. 

In  offices,  461-462. 
Superintendent       should      supervise 

work,  302. 

Supply,  receiving  and  storing,  46. 
Supplies, 

Issuing,  431. 

Receiving,  429-431. 

Used  a  second  time,  447. 


Swedish  names,  99. 

Symbols    for    manufacturing,    320- 

322. 
System  of  symbols  in  factories,  316- 

320. 

Systems,  comparison  of,  241. 
Systems  of  pay,  334-339. 
Systematized  type   of   management, 

238. 


Taylor,  Frederick  W., 
Experiment     of,     with     shovelers, 

213-215. 

On  qualities  of  employes,  359-360. 
On  time  study,  398-399. 
On  wage  increase,  347. 

Taylor  differential  system,  336. 

Teaching  men  to  work,  216. 

Team  work,  37. 

Territorial  division  of  labor,  35. 

Territory, 

Division  of  sales,  69. 

Testing  department,  146. 

Testing  for  physical  and  moral  fit- 
ness, 363. 

Testing  of  working  time,  331. 

Tests,    written    and    oral    for    em- 
ployes, 362. 

Textile   industries,  selling   problems 
of,  78-79. 

Three    factors   conditioning   output, 
328. 

Three  rules  of  store-keeping,  429. 

Three  sources  of  energy,  197. 

Time  and  materials,  savings  in,  405- 
448. 

Time  element  in  routing,  415. 

Time,  handling,  330. 

Time-keeper,  304. 

Time  periods,   comparison  of,  388. 

Time  saved  by  organization,  426. 

Time-saving  by  routing,  405. 

Time   schedule   of   Clearing   House, 
425-426. 

Time  study,  397. 

Time-study  clerk,  300. 


504 


INDEX 


Time    study    reduced    to    formula, 

401. 

Time  work  versus  piece  work,  332. 
Tobacco,  direct  selling  of,  73-74. 
Tool-room,  need  of,  136. 

Relation  of,  to  factory,  166. 

Systems,  433-434. 
Tools, 

High-speed,  329. 

Proper,  268. 
Town,  the, 

A  new  economic  unit,  6. 

Benefits  of  association  shown  by, 

8. 

Trade  papers,  402. 
Traders, 

Stock,  54,  55. 

Two  kinds  of,  59. 
Trading,  concentrated,  54. 
Train  dispatcher,  duties  of  a,  407. 
Train  routing,  406-409. 
Training,  an  aid  to  discipline,  267. 
Training  of  employes,  366-369. 
Transportation, 

And  factory  location,  129. 

In  a  plant,  411. 

Interior,  in  factories,  138-141. 

Of  goods,  149. 
Trusts,  rise  of,  30. 
Types  of  management,  235-276. 


U 


Understudy  products,  446. 
Understudies  in  management,  274. 
Undisciplined  and  disciplined  man- 
agement, 257. 
Units, 

Economic,  220. 

Industrial,  221. 

Management,  232-234. 

Managerial,  223. 

Of  management,  219-234. 
Unity   of   purpose    the    keynote   of 
management,  272. 


Unsystematized  type  of  manage- 
ment, 236. 

Use  of  facts  derived  from  experi- 
ment, 212. 

Use  of  statistics,  386. 

Use  of  supplies  a  second  time,  447. 

Use  of  symbols  in  factories,  316- 
320. 


Vocations,  advantages  of,  380. 
Ventilation  of  factories,  the,  375. 
Vreeland,  H.  H.,  quoted  on  hiring 
men,  353. 


W 


Wage  systems,  333. 

Efficiency,  337. 

Halsey,  335-336. 

Taylor  Differential,  336-337. 
Wages, 

Factors  in  influencing,  346. 

Standardization  and,  327-339. 

The  chief  incentive,  348. 
War  develops  organization,  247. 
Warehousing,  149. 
Waste,  avoidance  of,  210. 
Waste  motion,  446-447. 
Wealth,  and  its  problems,  28. 
Welfare  institutions,  371-372. 

Effects  of,  380. 
Welfare  work  in  offices,  455. 
Wheat, 

Different  grades  of,  50. 

Futures  in,  58. 
Work, 

In  process,  inspection  of,  392. 

In  progress,  420-425. 

Planned  ahead,  264. 

Pleasant  surroundings  for,  349-351, 
Workmen,  standardizing,  331. 
Woolen  manufacture,  England,  17. 
Written  aids   to   scientific   manage- 
ment, 401-404. 


'•  j.!--. 


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